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DANGERS OF DEBT

  • Writer: Treavor Dodsworth CFP®, CPA, CKA®
    Treavor Dodsworth CFP®, CPA, CKA®
  • Oct 18, 2024
  • 1 min read

Most are aware that in general debt is not a positive thing. It typically comes with interest rates (and sometimes high interest rates) which means you pay more for something than you would have otherwise. This is not the only danger of debt though.

Dangers of Debt

I heard someone say recently something to the effect of- Debt enables someone to push their lifestyle beyond what their income was designed to support. This is one of the dangers of debt.


Let's look at a practical example. Let's say instead of buying a good high quality car that is known for its low maintenance, longevity, and good gas mileage you buy the brand new truck and finance the majority of it. Not only do you now have a monthly car payment that you are legally obligated to repay but you also have higher maintenance costs, gas costs, insurance, and taxes (in some states) than maybe your income was designed to support.


Without debt you would have been required to spend within what your income and assets would support. What a shame that would be! I believe someone should in general have a very healthy dislike for debt. While I don't think a reasonable mortgage or student loans (if pursuing some sort of forgiveness) are unhealthy, most other forms of debt - credit card, auto loan, etc. should be avoided.


Obviously there are exceptions to this general rule and (full disclosure) I have had two auto loans in the past. I know it is not easy when you are being sold a monthly payment but there is so much freedom and flexibility that can come from not having consumer debt.




 
 

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