I will be the first person to say that there is good debt and bad debt. For the average American there is no way to buy a house without the 30 year mortgage. It is a simple fact. That said, in my opinion, most other debt is just a bad idea. Maybe a case could be made for debt that helps you grow your business or gets you into a vehicle which gets you to a paying job. Outside of that I am a debt – downer.
Who really benefits from consumer debt? Bank and Finance companies make a tremendous amount of money from you and me if we carry credit card and personal debt. Interest rates often run at least 16 to 18 percent and can run upwards of 24 percent. You say you have an offer for a 0% interest rate on a balance transfer credit card? I say…“Gee, that seems too good to be true.” Guess what…..it is. Credit card banks charge a balance transfer fee of at least 3% and often 5% of the balance you are transferring. That means you are paying a big flat fee to borrow that money. That is not smart money.
Ok, hopefully you get the point, so now why am I so down on debt? Over the age of fifty, for me, my life goals have become about saving as much as possible and preparing for a secure life in my 60’s to 90’s. The interest payments you make on money owed is called Debt Service. In the world of financial jargon ‘Debt Service’ is unusually clear. You are serving (paying money) your debt. It is as simple as that. You are paying interest on a meal you ate 6 months ago or that guitar you purchased 18 months ago.
Being debt free means you will never have to pay money out of your back pocket for something you probably could have done without. Having a debt free mentality will force you to make good decisions about your purchase. You will ask yourself important questions. “Do I really need this thing?” “Do I really need this $45 meal”.
So do whatever you wish, but I am allergic to debt and I believe you should become allergic also. Avoiding debt will improve your basic bottom line, increase your savings rate and improve your retirement nest egg.