Why debt? When debt?

As a teenager and young adult, I had a great disdain for debt. I was a ruthless optimizer, even then. Debt meant interest, and interest meant less money. You were supposed to get more money, not less.

My view on this has become more nuanced, naturally. Debt is a tool. Specifically, it’s a giant bandsaw-y drill press thing. It’s dangerous, but powerful.

You should, in my opinion still as a ruthless optimizer, only go into debt for one reason; you can turn the money you’re going into debt for into more money, cash in hand, than you’ll be paying in interest. You need to do the math here, every time, and you need to tailor it to your specifics.

Should you get a mortgage? Very possibly! You need a place to stay, so you’re comparing the no-mortgage scenario with the renting-and-saving-until-you-can-buy-a-place-outright scenario (or just renting forever, but that’s also suboptimal, especially if you plan to have children). If you are fairly sure that the property markets where you live will not move in a way that hurts you, that you will be able to pay the rates with a high degree of reliability, you should strongly consider it. However, it’s important to remember that catastrophes cluster; if an economic downturn in your city distorts the property market and sheds hundreds of jobs (including yours), you may not be able to sell your home or find a replacement job. If you’d been renting, you would find it much easier to pack up and move to a city that wasn’t in the middle of an economic downturn. (Of course, if you go out of state, you can walk away from a mortgage with minimal actual risk, but most people are honorable and don’t like to consider strategic defaulting.)

How about student loans? Well, this is tricky, actually. There is a lot of research showing that a college degree boosts your earnings in life substantially. But that research needs to sort out correlation from causation. Do people with degrees make more money because of what they learn, or because the kind of student who will naturally make more money goes to college and sees it through? Does the degree you target matter? (Hint: Yes.) Should you consider which college you go, and which major you pick in that college, and what your personal odds are of graduating in that major for that college? Very much so!

There are a lot of risks in accepting money for student loans which aren’t immediately visible. You could spend three out of four year’s worth of loan money and then fail to graduate when rates rise and you are unable to secure further funding. You could develop medical issues. The major you picked could turn out to not be useful in the years it took you to acquire it. You could simply not be able to do the work needed to graduate in your major.

So what, then? Should you just not go to college if you can’t afford it out of pocket? Well…not really, no. You should look at your options. You might get an associate’s degree at a two-year community college, use that to land a job, then take college classes at night while you work. You might look at some of the many jobs that don’t require bachelor’s degrees. But what you shouldn’t do is go into debt to get a degree because that’s what is expected of people of your socioeconomic class. That is playing patty-cake with the bandsaw-drill-press. If you want to spend thousands of dollars on furthering your education on the topic of your choice, that is laudable and desirable. But you shouldn’t put your future at risk to do so, and especially not by assuming tens of thousands of terrifyingly non-dischargable debt dollars.

Credit cards?

Well…if you’ve been contacted by you from the future who has a Sports Almanac book and needs to come up with all the money he can right now for sure-thing betting…

Actually, if that happens, you’re probably either hallucinating or the victim of an amazingly elaborate scam. And in either case, you shouldn’t be assuming additional debt. So, yeah, no to credit cards. Charge not to your credit card unless you are sure you can pay it off.

Now, if you’re in a genuinely bad and genuinely temporary living situation? Like, if you need to go briefly into high-interest debt to keep all the lights on and bills paid this month, but you’re 100% sure you’ll be fine next month? Then yeah, get that advance and charge that purchase. But be warned: the credit card companies as well as the shadier high-interest debt providers make their money entirely from people who think they will do so, and fail. It may be best to contact your service providers, explain your situation, and work out a plan with them before you start assuming debt.

This is coming from a situation of financial advantage, I am aware. However, my parents, who pioneered these practices, very much did not. Well, they didn’t start there, at least. But DINK early in life combined with relentless saving and investing (nothing fancy, just municipal bonds and low-risk high-dividend stocks) put them very much into a position of financial advantage, starting from a position with not a whole lot.

This stuff isn’t a silver bullet, of course. You can’t predict the economy and your place in it any more than you can predict traffic; you can check your mirrors, drive at an appropriate speed, manage your blind spots, and still die in a car wreck when a drunk driver veers into your lane. But you can take actions to reduce your risk, both in the car and in front of the checkbook.


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