A post by Seth Godin led me to an entry by Dave Ramsey called The Truth About Debt. Mr. Godin's article is well formed, and makes the usual pitches for avoiding consumer debt. He even comes up with some history that I was not aware of -- namely being that consumer debt was an invention to increase total consumer spending.
I don't know why Mr. Ramsay's article got linked. In it, Mr. Ramsey spends a lot of time saying that use of debt as a tool by the "wealthy" is not as frequent as we have been led to believe. But the kicker -- the reason why debt is not a good idea?
Boy, what a reach. I could spout the myth with enthusiasm, but life and God had some lessons to teach me. [...] I was confronted with this scripture and had to make a conscious decision of who was right – my broke finance professor, who taught that debt is a tool, or God, who showed the obvious disdain for debt.That's right, debit may be bad because it means you spend more of your money to bankers rather than saving it for your own use and all that, but what seals the deal is Proverbs 22:7.
Personally, I think debt is a tool. Debt can be used to buy things that you cannot afford right now. And while using debt for investing purposes means you should buy things that appreciate -- for example, theoretically housing -- there are some things that we buy that do not appreciate that debt will probably be used for.
From Mr. Ramsey's article:
Imagine how much you could put toward retirement if you just didn't have a stinking car payment?The problem with this is that it presents a very dim view of financial management. To wit: sure, you don't have a car payment because you paid cash for your car -- good for you! But where did that cash come from? If you want to have cash for the next car, you'd better be saving for that -- not retirement! And yes, it does mean that if you are saving for the future, interest works for you rather than against you, but in practice the difference is probably not that great. So there will be extra money for retirement, but it won't be the entire amount of the car payment.
Just because you use a tool improperly doesn't mean that the tool is bad. It is a poor
