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Aug 252011

What do Adolf Hitler, Josef Stalin, Osama Bin Laden and Saddam Hussein have in common? Besides, of course, some rockin’ facial hair? Combined, they killed millions of people. They started wars practically on their own. They were generally some pretty bad dudes. In fact, you could even go as far as calling each of them evil.

He’s so good at being evil that they made him a doctor.

Sometimes, certain words are thrown around a little too often. People are inclined to call themselves “nerds” these days, even when describing things that aren’t the least bit nerdy. I’m guilty of saying I “hate” something, when really I should say “mildly disagree” with it. Sometimes this happens because we tend to dabble in hyperbole for comedic effect. Or, we’re just idiots who don’t know the right word for the right situation. You decide.

One example I see of this is with the debt is evil crowd. If you’ve read any amount of financial blogs, you’ve probably heard this mantra at least once. Usually its author has gotten into some sort of hole created by easy access to credit. And while digging out of this hole, expressed their frustration at their debt. Does that make debt evil, or just the author a moron for accepting it?

Banks and credit card companies have never forced someone to take out a loan. Even when the unsolicited offers arrive in the mailbox, the onus is still on you to initiate contact and start the whole process of applying for credit. Even when the card arrives in the mail, you could still cut it up and throw the thing in the trash. But no, you gladly cracked that bad boy out and started spending. Debt is a mistake made solely by the borrower. Is that why you consider it evil?

When used responsibly, debt has the potential to raise your income. Even though I think college isn’t for everyone, the fact remains that college grads make more than high school grads. As long as you don’t piss away your money getting a degree that qualifies you to work at Starbucks, student loans can be a terrific investment in your future.

Say you spend $25k on an education that will improve your earning potential by $10k per year. That investment pays for itself in 2.5 years. Meaning, those student loans are the equivalent of getting a 40% return on that investment for the rest of your life. You’d have to be an absolute moron to call that evil. Millions of young people have been given the opportunity to attend college thanks to student loans. For the most part, these people enjoyed better jobs, higher pay and the increased security that comes with being better educated. Instead of paying for this schooling upfront, they were able to defer the cost, while paying a reasonable interest rate. There’s a reason governments are very generous in their support of student loans.

The same concept applies for the other big ticket purchase everyone finances, real estate. With a traditional mortgage, you buy a house and slowly pay for it over 25 years. What the renters and the pay cash for the house people forget is that, over time, each payment is progressively less, thanks to inflation. My $450 bi-weekly payment is slowly going down, since inflation is slowly eating into the value of that money.

Countless companies have either been saved or grown substantially by using debt. Virtually any real estate related company of any size was grown using debt. McDonalds just about drowned under their debts when they first started taking off in the early 1960s. The same thing happened to Canadian icon Tim Horton’s just a few years later. By using debt in their early years, these companies were able to speed growth and set the groundwork for future success.

It’s pretty easy to figure out whether taking out debt is a good idea. Are you using the debt to buy something that will go up in value? If the answer is yes, then apply for that loan.

I generally have quite the aversion to financing cars. I’ve questioned why having a car payment is just accepted.  I don’t care if the car company is letting you borrow the money at a low rate, you’re still paying interest on something that goes down in value. It goes down in value, you pay to operate it and to insure it, and you’re still financing it? Just buy a beater. Believe me, the repair bills won’t be that bad, especially if you just use your car around town.

Debt that finances liabilities should be avoided. It’s never a good idea to pay interest on a trip, or video games, or even a car. But just because you’re stupid enough to do it doesn’t make it evil.

Tell everyone, yo!

  18 Responses to “Debt Isn’t Evil”

  1. I totally agreee with you. Debt is not evil, if we can be creative with it. Two thumbs up!

  2. Totally agree. It frustrates me to see some bloggers creating an environment that demonizes lenders too. I work for a credit union and we help people who no one else would help. Some of that includes lending. Yes, some banks push their staff to sell a reverse mortgage to a little old granny with a paid off house…but credit unions and most community banks do not do this. Yet more than 50% of Americans have at least ONE account with Bank of America. If you don’t like it, vote with your feet! Support your local credit union or community bank. It helps everyone, but especially you.

    As with most things in life, when used responsibly, debt becomes a powerful tool to accomplish your life goals.

    • I bank with a credit union. They do a decent job.

      I’m also a shareholder of a large Canadian bank. So I’m conflicted…

  3. You are on the money here Nelson. The subject will be flogged to death in the coming months as media types interpret the message in Dave Chilton’s forthcoming new book – I’m not sure that he is saying debt is evil, but rather our inability to manage it and our lack of ability to save are digging for ourselves a massive big pit.

  4. Well, I wouldn’t call debtors morons.  They are just human and fell for the big push to consume.  They were probably influenced by their parents and peers.  Then they got older & wiser.  Debt is not evil, just unwise in some circumstances.  Probably people who got in debt trouble find it easier to deal with debt as an evil enemy than admitting to themselves they were morons!  How many people do you know who go around saying they are morons?  I do wonder about some who say to cut up your credit cards.  A bit extreme, but perhaps for some people that’s all that works.  We love getting our cash-back from credit cards & never pay interest. 

  5. […] secret online crush, Nelson over at Financial Uproar says that Debt Isn’t Evil.  It’s not because I LOVE HIM that I’m saying that he’s right.  Debt, in an of […]

  6. I totally agree, Nelson! There was a post recently on another blog about being “so angry” about debt payments. I’ve had credit card debt that I charged up buying stupid unnecessary things. So, yeah, I’ve felt angry at myself for having debt before. I was able to pay off those cards in about six months, and I’ve been focusing on my remaining debt since – student loans.

    Because my debt was for something that will increase my income when I begin applying for jobs in my field, I’m not angry at this debt. I pay over 50% of my income to my debt each month, but I’ve never thought it was evil. I couldn’t have gone to college without these loans.

    • Student loans will allow you to earn substantially more once you graduate. And yet, people refer to student loan debt as “evil”. And then, they get mad when I call them “morons”.

      Anyway, you get it. And I’m glad that so many of my readers do. Thanks for stopping by Red.

  7. So glad I stumbled upon your site. You’re dead on. How people compare debt and Hitler is humorous.
    I hope you realize now you’re going to be referred as “evil” when you refer to extreme debtors as “morons” but I completely agree with you. My least favorite group: those who cut up credit cards. 
    Credit cards are the best tool around for spending, just not borrowing.

    • Thanks for the kind words.

      I figured if they can use words like “evil” to refer to credit cards, I could refer to them as “morons”. We’re basically doing the same thing. So many people use credit cards to their advantage for them to be evil.

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  9. I enjoyed this post. I will say that while debt itself isn’t evil, I think some of the tactics used by companies (I’m looking at you, Wells Fargo!) are pretty mean. I have a private student loan with WF. Taking out the loan was my own stupidity, but then they did things like assigning a rolling due date, jacking the interest rate even though I’ve made every payment on time, and refusing to take payments online. When a company tries their best to keep people in debt even when they are trying, I consider that evil.

    I do feel that companies deserve to make money. After all, that’s why they exist in the first place. But I wish they could be satisfied with the millions they’re making instead of pushing for even more.

    • Damn you Wells Fargo!

      As a shareholder in both a Canadian and American bank, I want them to suck all the money they can from poor suckers like you. So get out of debt, and then they can move onto the next sucker, one that will be in debt forever.

  10. […] conventional wisdom is the PF community is that debt should be treated like ebola – complete eradication. The authors of several of the aforementioned blogs have stated that they […]

  11. […] I lapsed into one of those debt is evil guys for a second […]

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