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There’s No Such Things as Good Debt


This guest post is by Mr. Broke Professional: the husband in the husband/wife team behind Brokeprofessionals.com

You hear it all the time: “Student loans are good debt.” Or: “A mortgage is good debt.”

I agree that compared to certain types of debt (such as a usurious credit card debt, for example), they may be a “better” form of debt.  What I do not believe in any longer is the notion of “good” debt.

When you really think about it, how could owing another person or institution money ever really be good?  I know sometimes it is necessary.  But even then is it truly “good?”

When I was in high school my parents always told me to get as much education as possible.  “Be a doctor or a lawyer,” they would say.  I grew up in a blue collar family, and neither of my parents attended college.  They saw an education as a way to ensure that I would “do better” than they.  I believed in this concept whole-heartedly, as it was also the major argument presented by the media and by teachers in school.  It was like a variation on the classic Field of Dreams line, “If You Learn It, Money Will Come.”

What I failed to consider was how comparatively well-off my parents truly are.  Sure they never went to fancy private colleges, nor do they belong to a country club or fit in with the bourgeoisie set.  What they do have, which even Miffy and Biffy likely do not, is absolutely zero debt.

My parent’s have only owned one house in their lives, and it was paid off in the early 90’s.  They purchase their cars in cash.  They never had any student loans.  They simply work hard at “average” jobs earning “average” livings.  They will be able to retire when they wish.  They have lived honest hard-working lives and I respect them more and more the older I get.  (I am now in my late twenties).

I on the other hand, started my life out in a completely different manner.  I took out six figures in student loans between college and law school.  I am now in the process of buying a house despite having not paid off even a quarter of that student loan debt.  My wife and I own are cars outright and have no student loan debt, but money is a constant worry, despite the fact that we are both “professionals” who earn “comparatively high” salaries.

Yet, at least 80% of the time that I try to explain this situation to someone, I will get the same response.  “Oh, don’t worry.  What you have is all good debt.”

The housing crises has not changed the average person’s opinion that mortgage debt is “good debt.”

The high unemployment rate, even amongst “professionals” has not changed the average person’s opinion that student loan debt is “good debt,” even though you cannot discharge it in bankruptcy.

Sometimes I feel frustrated trying to explain to anyone who will listen.  “It’s not good debt!  I still owe the money!  They can take away my law license if I do not make my student loan payments! I could never auction my degrees for money!  I can never get rid of my student loans in bankruptcy!  I am just one catastrophe or firing away from being finished!”  Then, I will stop, nearly exhausted from my own perceived truth in my arguments.

But all I will receive is a blank stare.  And the person I am trying to explain this to will invariably look at me as though I have lost it–at least for a few moments.  After they get over the initial shock of my mini “outburst” they will then always respond in just about the same way:

“But its ok, you will earn so much more over your career that it will all be worth it.” (i.e. Don’t worry–you have good debt!)

At that point I always get frustrated and stop trying to explain.  And I’ll go back to my house, and cut another check to another student loan provider, hoping to make even the tiniest of dents in my massive, almost impossible to repay within the next decade debt.

And I for one do not see anything good about it.

Broke Professionals is a personal finance blog aimed at overeducated and underpaid.  Join the husband/wife blogging team of Broke Professionals as they attempt to dig themselves out of a combined six figures in student loan debt while attempting to not give in to delusions that it is “good debt.”

retirebyforty> Thank you Mr. BP for sharing your story. I’m going to join the masses and disagree with your student loans view. It’s imperative to get a good education these days and if you have to go into debt so be it. The alternative is bleak. It’s much tougher to get by on an average job these days. I agree with Mr. BP on mortgage though. Buying a McMansion is a terrible investment. To me, the only good loans are student loans and mortgage for rental properties.

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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{ 23 comments… add one }
  • Yakezie February 21, 2011, 3:45 am

    Do you find it ironic that you spent the entire post arguing for why there is no good debt, yet you are going into more debt with your mortgage?

    “I am now in the process of buying a house despite having not paid off even a quarter of that student loan debt.”

    I don’t get it. Are you not following your own advice? If not, what’s the point of making the statement?

    Come say ‘hi’ to Roger, the Amateur Financier when you’re done!

    Cheers, Sam

  • LifeAndMyFinances February 21, 2011, 3:49 am

    I wholeheartedly agree with you Mr. Broke Professional! I don’t believe in debt of any kind. My wife and I had $20,000 in student loan debt (which is nothing compared to you I know), and it feels like it’s taking forever to pay it off. I think education is important, but it’s even more important to pay for it as you go. Assuming that your job will pay big bucks when you get done with school will only get you into trouble and a world of financial hurt. If it’s possible to avoid debt, do it at all costs!

  • FB @ FabulouslyBroke.com February 21, 2011, 6:10 am

    All debt is bad debt to me, even mortgages.

    I’m one of those people who just doesn’t believe in having debt any longer. Not after getting out of $60k of debt.

  • Sustainable PF February 21, 2011, 6:25 am

    The point of good vs bad debt is that some debt is more advisable than other debt. Debt where the rates are insanely stupid b/c you buy consumer goods and where you can get no tax breaks is a truly “bad” debt. Debt where you can get a low interest rate and get a tax deduction on the interest is a heckuvalot better than “bad” debt and as such is coined “good”.

  • Kevin @ Thousandaire.com February 21, 2011, 6:32 am

    Good debt is any debt where you can get a better rate of return investing. If you wouldn’t borrow at 0% and then invest that money at a guaranteed 1% just to avoid “having debt” then I hate to be blunt, but you are financially stupid.

  • Roshawn @ Watson Inc February 21, 2011, 9:09 am

    Well Broke Professional, I believe I know where you are coming from. I agree that the student loans are not Good Debt, regardless of how someone tries to couch it. That’s why once we graduated, we quickly paid them off (despite the total payoff being very substantial).

    I’m curious as to what you are using as your gauge with respect to your mortgage. Since you don’t believe the mortgage is “good debt,” what ratio/guideline/rule of thumbs are you using to make sure that you are not getting into trouble.

  • krantcents February 21, 2011, 1:49 pm

    I will disagree a little bit! I like mortgages because I can leverage my 20% down payment to buy a house and write off the interest as a tax deduction. The IRS is subsidizing the purchase of my home. I do advocate a 15 year mortgage, however it reduces my deduction. In spite of my declaration, I will pay off my mortgage in time for my retirement in 6.5 years. How do I justify this? I can’t! I may change my mind, take out a 30 year loan and get a life insurance policy to cover it. Why? Things may change in the next few years!

    • LifeAndMyFinances February 22, 2011, 3:31 am

      I can’t believe people are still talking about getting a tax break on the interest from their home mortgage. Why do they think this is a good idea? If we pay in $2000 in interest, we might get a $200 tax break. If you think this is financially wise, please, send me $100, and I’ll send you a crisp $10 bill.

      • retirebyforty February 22, 2011, 9:26 am

        I agree with you Derek. Tax break is helpful, but shouldn’t be the motivation to get a mortgage.

  • NoTrustFund February 21, 2011, 6:31 pm

    I agree with you on this one. I think if you are looking to prioritize paying off your debt, it makes sense to pay off you student loans and mortgage debt last. However, once your other debt is gone, pay off the ‘good debt’ as soon as possible.

    In terms of taking out debt I think it’s ok to take out student loan debt and mortgage debt while I’m against credit card debt completely and not a fan of car debt. So in that case maybe there is ‘better debt’. But if you have student loan debt or mortgage debt get rid of it as soon as it makes sense to do so.

    I recently paid off my student loan debt early. We’re planning to move in the next year or two so are not currently paying of our mortgage early. But once we move into our ‘forever house’ we will be making as many extra mortgage payments as we can, on top of taking out a much smaller mortgage than the bank will allow.

    Thanks for the great post!

  • brokeprofessionals February 22, 2011, 1:15 pm

    Hey everyone, thanks for commenting. I was really just trying to state two things: 1) That sometimes the time/money involved in obtaining a “prestige” job is actually so detrimental that people would be better off having not gone that route (using my parents as a positive example of this) and 2) that in most instances mortgages or student loan debt are still not “good.” I admit they may be “necessary.” But I do not like the distinction of “good” and “bad” debt. It should be bad and worse or the like. Of course if you take these things far enough you can make me look silly, for sure if you can borrow at 0% etc., then there could be “good debt.” True also that maybe I’m not following my own advice by getting a mortgage. But I admitted sometimes debt is necessary. I just don’t think it is good. It never has been for me anyway.

  • 101 Centavos February 23, 2011, 3:47 am

    All debt is bad juju. Some is just more bad than other.

  • Debt Her February 23, 2011, 7:32 am

    I feel the same anxious frustration about the debt. My parents are also of the middle class hardworking variety. I too continue to be impressed by what they’ve accomplished. But, sometimes, I get frustrated because they do not understand how stressful it is to carry this six figure debt around for all the reasons you’ve discussed in your post. Thanks for sharing — it’s a little comforting to commiserate with other people in the same position.

  • Mr. BP February 23, 2011, 6:40 pm

    Debther (witty name by the way)

    I’m sure there are a lot of people in our situation. The bottom fell out in my second year of law school and that hurt my starting salary, but at the same time I’m lucky to have been thus far constantly employed. I figured I would be making six figures right out of law school. I underestimated the market and underestimated the profession. Surprisingly, New Jersey is the 4th lowest paid state for attorneys. (I guess that’s why all my lawyer friends who are really killing it moved to Philadelphia or New York).

  • Finanzas Personales February 24, 2011, 4:58 pm

    You are right and I guess your experience has made your position much more extreme. I’m also anti debt. However, as I wrote on my last post, mortgages and similar debts are good in a sense that, when used correctly, can help someone with a clear financial plan achieve specific goals. Let’s face it… buying a house in cash would be a dream come true, but it would just take too long. And if that house is intended for family use, probably a mortgage at some time during the accumulation process is a good idea. For example, if I save $1,000 a month for a house, have accumulated $25,000 and found the right place at the right price, taking a mortgage, closing the deal and using that same $1,000 a month to pay for it might be a good idea.
    It’s a very traicky subject and everyone has a personal opinion about it, but I’m not so radical about it and think some times, debt can be a positive force.

  • First Gen American February 25, 2011, 2:43 am

    I always considered my mortgage and student loan debt as a “necessary evil”…one that had to be eliminated asap. I never once thought of it as “good”.

  • Jessica07 February 25, 2011, 12:08 pm

    Ha-ha! I loved this post! I agree, too, with the distinction you made between “better” vs. “good” debt. Absolutely!

  • Dan Cassidy February 25, 2011, 5:46 pm

    Their may be no such thing as good debt, but their are certainly ways in which you can use debt to your advantage and leverage it. Having a car loan is not good in the sense that you have a liability on your hands and a depreciating asset, and also a mortgage these days. On the other hand investing debt into assets that can produce a residual income such as a rental property or business could be considered the most ideal debt to have even if it’s considered bad debt.

    Personally I think student loan debt is the worst possible debt you can have especially today. Your stuck with even if you file bankruptcy it can’t be discharged and the chances are you are investing in an education today which won’t give you a return on your investment when you graduate.

    • retirebyforty February 25, 2011, 10:02 pm

      I agree with you 100%.
      Student loan is bad, but if you can find a good job with that education then I think it is worth it.

  • Shaun February 27, 2011, 1:09 am

    have to agree with @Retireby40’s initial comments. My personal feeling is that it is important to invest in yourself through education. A Law degree will pay for itself, something like arts might not be quite as good in terms of a return. As for mortgages, your home is not good debt but it is something we desire anyway. If you don’t make it your only investment and remain smart about other debt you’ll get there in the end. It just takes longer!

  • Paper, Plastic, or Pixels? March 1, 2011, 9:56 am

    It’s very good if Obama decides to forgive it completely.

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