Is "Debt" a Dirty Word?

In reading many financially oriented blogs, one would get the impression that debt is something awful, something to be avoided at almost any cost.  But is it?  Is debt something that is intrinsically bad or is it simply a tool?

I'm a Girl Scout leader and I teach kids to play with matches.  I always ask them if matches are dangerous and they all generally agree they are.  I then ask them if pencils are dangerous, and they all reply that they are not.  I then ask them if they want me to poke them in the eye with a pencil, and of course, they don't.  At that point I explain that matches and pencils are both tools.  Use them properly and they are useful; use them improperly and they cause pain.

So what about debt?  Is debt a tool or an evil?  Debt is a tool, but it is a tool that is often misused.  The misuse gives you bad results but those results don't make debt a bad thing any more than poking someone in the eye with a pencil makes pencils a bad thing.

Misusing Debt

What does it mean to misuse debt?  It is when you buy something that you don't need and can't afford.  It is when "debt repayment" is a major part of your budget for a long period of time and when it keeps you from saving for the future.  It is when the interest on debt becomes a significant expense. It is when it takes longer to pay for something than it takes to dispose of it.

Using Debt as a Tool

Debt is a way to obtain something now, and pay for it over time.  Sometimes you have no choice.  If you don't have health insurance and end up in the hospital, you will owe the hospital money for some time.  On the other hand, at times we do have choices.  If your uninsured car was just totalled, you need another one--but you don't need a new car.  The cost of your "new" car shouldn't keep you in debt for a long time and you don't want interest to make you pay for the car twice.

On the other hand, if you need new furniture, are buying furniture you can afford, and are offered 2 years same as cash, why not take it?

If you have the choice of cleaning out your savings to buy a car, or financing the same car at less than 2% per annum for three years and you expect the car to last ten years, I dont' think financing it is a bad idea.

While some super savers may be able to afford a home without a mortgage, for most of us, foregoing the mortgage just means more money thrown away on rent.

Like matches, debt is a tool. Like matches, debt can burn you if misused.  Like matches, debt can make life much easier.