Is Debt Good or Bad? 3 Lessons I've Learned

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I know from the get go that many people have their philosophy on debt. This is simply mine.

For so long I have had only one thought about debt-“Debt is bad”. All I knew was debt caused my family to go bankrupt. Then we had to move from the only home I ever lived in and witness my family go through a lot of stress. I didn’t like it nor did I want to be around it and I formed a really negative perspective of debt. I mean, how could you blame me? The only thing I could associate with debt was negative circumstances.

Following high school, I was convinced I had to buy into a dream college in order to get what I want. I didn’t really know what I was doing. I just knew that in order to go there I needed more money than I had. As a result, I took the money the state offered me. Money they want back with interest.

I took the loan. $7,000 of debt. I used my credit card to pay for books. $600 worth of debt. More debt. $7,600 worth of debt.

I kept thinking bad debt, bad debt.

Literally, it was one day towards the end of the second semester of my first year when I felt the weight of those borrowed bricks fall on me. I had to pay this money back!

What if my job doesn’t pay me enough? What if I become some slave to the government since I’m only working to pay back what they gave me? Isn’t this just a cycle of investing, working then working then working to pay it all back? When does the reward come? And finally: When will I be free and not owe somebody something so I can do what I really want?

I didn't have enough logical desire to continue.

I couldn’t come up with one good lie to pull out more money I didn’t have only to invest it into something I didn’t even care enough about. I knew there had to be another way; some other way to not be another employee working forever to pay back borrowed money.

I know I might have lost some of you college go-ers right there. So let me bring you back. You probably know exactly why you are in college. You most likely have it all paid for or are okay with the amount you owe because you are certain you will have the job you want that will pay for it. You enjoy what you are learning and believe it will apply to what you really want to do.

Or maybe that just made you uncomfortable..

Perfect. Now that we got you back I’ll actually start sharing why this matters anyways. I promise there is a point to this.

After investing into my financial education, I started learning more about good debt and bad debt. I thought “Good debt? How could there be such a thing?” Maybe you are thinking the same thing right now.

The purpose of my story is to illustrate where I have come from so I can share some important lessons I have learned.

1. Not all debt is bad. 

The difference between good debt and bad debt falls heavily upon assets and liabilities. Assets-pay you, while liabilities-you pay. Let’s practice on some examples.

Education? Good debt.  Obviously, if you learn to catch fish you can have enough to feed yourself and sell some to make some money. Which is the ultimate purpose of schooling, right? You invest into an expertise that is expected to get you to your desired outcome-something that pays you back.

For me, this meant changing the education I was investing in since I want to be a financial genius and start my own business.

Credit cards? Good and bad debt. Gotcha there. If what you purchase on a credit card is an investment that is going to pay you back (ie: Education, stocks, etc.) then it is good debt. If, on the other hand, your purchase is a couple new outfits, a new phone or a meal with your friends you are buying into bad debt. That outfit or phone is probably not going to be paying you back much.

In my case, I stopped putting random purchases on my credit card. If I couldn’t afford a new phone, I couldn’t afford a new phone. No ifs ands or buts about it. It is a liability. On the other hand, when I want to invest into an education or product that will pay me back, asset, I have no problem charging it. For example, yesterday I spent $188 on a website for my business. Why isn’t it a liability? Because that site will bring me more business and therefore more money. It will pay me back. Good debt.

Okay, now here is where I have to warn some of you to not be ridiculous and invest into a bunch of education and products that you don’t apply because those can and will become liabilities. A smart investor looks into a matter.

Car payments, shopping sprees, subscription services, food, and entertainment? You can answer these for yourself, but let’s say it like it is: liabilities. Boo liabilities. Bad debt. Don’t worry I’ve done it, too. I’m not going to slap your hand.

Education, business ventures, stocks, and real estate? Risks. But these risks are assets worth investing in because with the right knowledge you will be paid back. Good debt. Go assets.

Which brings me to the next lesson I learned.

2. The right education, if applied, is worth the debt.

 I don’t feel the need to explain this one.

3. What you invest in is entirely up to you. Not anyone else. Only you.

Invest in the education you want to benefit from. Not the education you are most supported or encouraged to invest in. You pay the bills at the end of the day so let’s make them worth paying.

I had to make a tough choice this year. I had two options: Option #1 Have the support and understanding of my parents and a majority of those around me. Option#2 Have lots risk and many more responsibilities. As grateful as I am to have had the opportunity to attend community college at my parent’s expense, Option #1, I had to respectfully decline. In doing that, I also accepted that I am going to have to start paying for my own living expenses soon, Option  #2.

The bottom line is this: College education is not what I want. It’s what others want for me. The things is, I want to look back at my life 15 years from now and have a story worth telling. Not one of secret regrets because I invested in what others hoped for me. So in summary, invest in what brings value to you because it is your life-not anyone else’s. No one else needs to understand or support you. Some will, some won’t. That’s life. Support and understand yourself and let that direct you.

The purpose of this article is not to condemn you by any means. It is to bring you to a place of recognition with me. Let's be honest.

Often, I wonder why I see nice cars parked outside not-as-nice houses. It wasn’t until I realized it is so easy to be consumed, in this culture, with living outside of our means (storing up loads of liabilities). We are sold on the radio, TV and by our own comparison of others, that we can and should have that which we cannot afford- to which I say bogus.

We are going to live with what we have, albeit not up-to-date. We can and will live if we don’t buy a newer car or the latest fashion trend. We will say no to the bad debt and liabilities we are constantly sold. We can and will be smarter than average consumers by reducing our liabilities and gaining assets.

We will make every investment worth it.