It’s neither! It’s not an issue of right or wrong; it’s a matter of risk.
What is debt? Debt is borrowing money to buy something and paying it back over time with interest. This includes your home, car, vacations, appliances, education, or anything else.
What do debt and risk have to do with each other?
- Limited Income – Every person or family has a limited amount of income to spend. As we take on debt payments, we have less and less of our income to spend on other things. This can be risky.
- Presuming on the Future – When we borrow money we are presuming on the future. We might imagine that things will stay the way they are. Or, many times, we take on debt assuming our situation will continue to get better. If this turns out to be the case, we are probably OK. If not, it can be risky.
- Forfeit Goals – Debt can hold us back from accomplishing our goals. For example, one spouse may want to stay at home to be a full time parent. Or, you may want to take some time off and travel the world. If your fixed debt payments are too high, these goals may not be possible.
Do you remember playing musical chairs? At first, the music is playing and there are enough chairs for everyone. Then, as the music continues, one chair is removed. When the music stops, someone is left standing without a chair and they are out. This same principle applies to debt. When the music stops, the people who are carrying too much debt will be left standing without a chair and they will be out!
So, what should we do?
- Take it seriously and proceed with caution! Making a purchase using borrowed money isn’t something to jump into. Seek advice from someone you respect. Take your time. Imagine the impact of this decision if life doesn’t turn out the way you hope.
- Keep a long term perspective! A wise money manager once said, “The longer term your perspective, the better your decisions will be.” We want things NOW, but as we stretch out our time horizon the right decision usually becomes clear.
- Get ahead of it and plan! Almost all of our major purchases can be seen ahead of time. Cars, homes, vacations, appliances, college, and others. These don’t sneak up on us overnight! This means we can plan for them. Begin setting aside some money each month for your next car or vacation. Think about your kids’ college expenses and how you are going to fund them.
“You can wander your way into debt, but you can’t wander your way out.” Be intentional and proceed with caution!