Don’t misunderstand me -I am not saying carrying debt is a good thing- but I think an implication that is “sold” with the idea of being debt-free is that your financial life gets easier or more pleasant. I’ve found that that isn’t really what happens.

What does happen is that the nature of your financial problems change. For example, if you want to buy a house but not go into debt, that’s a problem. Saving up the money to buy a house without debt will take years. You will work just as hard, find yourself just as functionally illiquid (and “waste” just as much of life) compiling that money as you would have if that money were paying a mortgage. True, if you save first you have more financial flexibility if your circumstances or desires change. On the other hand, saving gives you less flexibility in that you are planning for an uncertain future instead of spending in a present whose circumstances you can define.

So debt is good – or rather it can be good. I think the key is whether you take on debt responsibly and manage it responsibly. Signing a mortgage for a home you really want to live in, after doing significant research and due diligence and leveraging your financial strength to get favorable terms, is good and responsible debt. Signing a mortgage for a house you merely want to flip, with changeable, possibly damaging terms, is irresponsible debt unless you are a professional. (Even if you are a pro, it may still be irresponsible.) Putting $40 on a credit card for Chinese food (like I used to do all the time) is irresponsible debt too.

Personally I think it is part of financial maturity to have debt. But it has to be manageable, favorable debt for the few important things in life.

One of the first things I think people should do when they become debt-free is make a list of three to five things they are willing to go into debt for. For example, I would gladly go into debt to start a business, to buy a home, to add onto a home, or to fund my children’s education. I would never take on debt for a car, however. Cars are essentially these days, and I am not against car loans – if you really really really like cars and that’s one of your five things. It’s just not one of mine.

Good luck and all the best!
Elizabeth

Thanks
John