• Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint
Share this Page URL

Chapter 1. Isn't Debt-Free the Way to Be? > When “Good Debt” Isn't

When “Good Debt” Isn't

Debt clearly has a place in our economy and in our lives. That's what many financial gurus are trying to get across when they divide debt into “good” and “bad” categories. Typically, mortgages, student loans, and borrowing to start a business are considered good; most other borrowing is considered bad.

But that leads to another problem with typical debt advice, since too much “good” debt can sink you just as deep as too much “bad” debt.

I've received countless e-mails from people who borrowed $20,000, $50,000, and even more to attend college, only to find that they can't get a job in their field or make even the minimum payments on what they owe. Many had no clear idea of how much their borrowing would cost them when they graduated; they just knew that lenders were eager to give them the cash and that their educations were supposed to help them get ahead.

Furthermore, student loans are almost never wiped out in bankruptcy court, so they can be an albatross that hangs around your neck for life.

Charles borrowed more than $100,000 for his education, but a divorce caused him to drop out of his doctoral program before he got his PhD. He found a job paying $40,000 a year, and his lender agreed to reduce payments based on his income. But his debt is still accruing interest.

“My loan just keeps getting bigger and bigger,” he wrote. “I have no hope of paying [it off] unless I win the lottery.”

Mortgages are another area where people can quickly get in over their heads.

Many people assume, incorrectly, that a bank wouldn't lend them more money than they could comfortably repay. In fact, lenders know that you'll move heaven and earth to pay your mortgage, even if it means you don't have enough money for other goals, like retirement or vacations.

The reality is that you need to know your own debt limits based on your individual situation and goals.

  • Creative Edge
  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint