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Your debt makes other people rich. You’re only borrowing from your future self, who will be poorer, less financially secure, or lead a less abundant life because you had to have it now, before you could really afford it.
You can’t save while you’re in debt, and like a weed it grows and grows. Kill it!
The only exception is debt you take on for investment purposes. Unless you run your own business, such ‘acceptable investment debt’ nearly always begins and ends with an affordable mortgage to buy property.
Borrowing to invest in shares is too risky. The market goes up over the long-term, which might make it seem like a good idea. But shares are volatile, and the market could easily go down over the 3-5 year time period of a personal loan.
You don’t want to have to sell your shares when they’re down to repay your capital – like that you’ll end up poorer than when you began.
Very occasionally debt might be acceptable if you need to buy something to earn more money, and you really can’t save it up.
For instance, you may need specific training to upgrade your job, or perhaps you want to buy an ice cream van to whip up a fortune. (Don’t laugh, it worked for Duncan Bannatyne
You’ll have to use your judgement here. Buying a fancy car with debt to impress your boss certainly doesn’t count!
But let’s be honest, we all know the kind of debt I really mean – excess clothes piled up using store cards, overseas holidays put on the credit card, a dozen sundry items bought over a week on the ‘never never’ as our grandparents ironically called credit.
This kind of debt – the kind of non-mortgage debt that most people take on – will make you poor if you’re not doing very well already, and it will stop you becoming rich if you are.
Too extreme? Everyone has debt, you say – surely millions of people can’t be wrong?
I disagree. I think the popularity of debt is down to:
- Relentless emotional marketing by retailers to persuade us that we must have things we never knew we needed and most probably don’t.
- Relentless emotional marketing by financial firms, who tell us we can have those things – now.
- People being too impatient nowadays to save for anything.
Perhaps I sound old-fashioned, but I believe we need to relearn some of these old ways of thinking.
Financially, debt makes no sense in my view, whatever economists tell you about balancing ‘consumption over a lifetime’ or similar wealth-sapping baloney.
In reality:
- Debt makes everything much more expensive
- While you’re paying off debts you’re not saving and investing
- Debt saps your efforts to make more money
- You’re not getting anything ‘free’ when you buy on credit, you’re only borrowing from your future self, who will be poorer as a result of your debts
Let’s look at each of these in more detail.
