While a hunter/gatherer or farmer of the past may have been self-suffcient, or while past cultures may have relied more on bartering, today’s culture relies on money. It has also become common to purchase things when we don’t actually have the money to pay for it.

Originally posted 3/29/2005 on

There are a couple of problems that we have in the good ole U.S. of A.
1) There is a mentality some people have that they deserve to live at a socially acceptable standard of living. The socially acceptable standard of living includes a shiny car (or two), a big screen TV, lots of TV channels, movies, eating out, etc.
2) Many people assume that if they can make the monthly payment today, then they will be able to pay the debt off in the future.

This results in increased spending and an increased willingness to take on debt.

My personal approach to credit: I’ll only buy something on credit if I could turn around and get out of debt immediately if required.

I use my credit card for most of my purchases, but I only buy something if I have the money in the bank to pay for it, and I never carry a balance on my credit card.

I borrowed money to buy a new car, but I put enough down that even with the depreciation, the car was always worth more than I owed on it. (I then payed it off in under 2 years so I didn’t have to keep paying interest.) I don’t particularly recommend borrowing money for a car, but if you do, you should never let your loan get upside-down (what you owe is more than what the item is worth). I did it partly to build my credit rating, because I knew I would be applying for a mortgage in the future.

I borrowed money to buy my house. This is the one scenario where I see debt as a “good” investment. Yes, it’s possible to save up money and pay cash for a house, but in the meantime you’re paying rent that doesn’t build any equity. By getting a mortgage, at least some of your payment is towards the principle, the interest is tax-deductible, and you can still put additional savings towards the principle. That doesn’t mean every mortgage is worthwhile; you still need to make a wise choice in the property that you purchase, and not over-extend yourself. However, if you buy a decent property and put enough money down, the house will always be worth more than you owe.

When I bought my furniture, I took advantage of the “18 months same as cash” deal. I could have paid for it in full, but, hey, if they’re going to let me keep my money for another 18 months, I’ll do it. I don’t recommend that for everyone, because not everyone has the discipline to set the money aside and not spend it. Furniture, appliances, etc., are not the sort of things you can easily turn around and sell for as much as you paid for it, so I definitely don’t recommend buying anything like this on credit unless you have the cash on hand. If you do have the cash on hand, it doesn’t make sense to pay in installments if you are paying interest, but if you don’t have to pay interest and you’re disciplined enough to keep the money in the bank, there is financial benefit to hanging on to your money for as long as possible.

Borrowing money for education is debatable. I know some financial advisors (including Larry Burkett and Ron Blue, I think) see college as an investment for which it is worthwhile to borrow money. However, this is not like buying a house or a car that you could sell if you were forced to pay off the loan. There is no guarantee that you will be able to pay the debt. What if you get out of college and can’t find a job? More than a few people exit college with a new spouse, a pile of debt, and a job that doesn’t pay very well. In many cases, it may be a worthwhile investment, but there is definitely some risk involved. The level of risk depends on what field of study and occupation you pursue. It’s one thing to get student loans if you’re pursuing a professional degree (doctor, lawyer, engineer, accountant, teacher, etc.). But I have mixed feelings about coming out of college in debt to the tune of $40,000-$60,000 or more, and planning to be a pastor or missionary.

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