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There's a happy medium with debt. Dave Ramsey takes a conservative approach in that he prefers saving your entire stack before buying something, I personally l
by kirse 5y ago
There's a happy medium with debt. Dave Ramsey takes a conservative approach in that he prefers saving your entire stack before buying something, I personally like to keep (total debt < net worth), with some consideration for liquidity risk thrown in. If I lost my job could I be a free man or am I buried and sweating? Others take that multiplier even further and sometimes luck out.
On one hand debt causes issues for those who lack knowledge, but on the other hand it allows a great degree of near-term accelerated growth and societal load-balancing. The fact that society enables folks to collectively trust others to pay their debts is why we're not still stuck with a barter economy and the inherent inefficiencies of a "trust-less" economic approach.
So much of present growth and fruitfulness is rooted in the future faith that others will make good on their promises (debt). Debt is a great thing in moderation.
- emodendroket 5y agoThe case for debt is clear enough with a home, a car, or a business investment. Hard to imagine feeling anything but embarrassment or frustration at paying off a television years after you got it.
- alkot89 5y agoWhat is the difference other than a psychological one? Especially when you use car as an example. A car will probably depreciate just like a TV. It comes down to whether the terms are good. I have purchased TVs and computers on for 0 or very low APR because I had better things to do with the cash. I have no problem paying $4000 2 or 3 years in the future for a TV I have had the whole time - it beat the alternative.
- emodendroket 5y agoA car has obvious practical utility if you live in a country where a car is the only way to get around. In many places it's basically essential to having a basic life where you get to your job, and so on. A television has comparatively little such practical utility, and the downsides to setting your sights on a cheaper one are much easier to live with. The value of a car is also substantially greater (making a cash purchase less practical) and your odds of recovering a substantial portion of the purchase price through resale are much better (indeed with a TV you'll likely pay to get rid of it).
- abustamam 5y agoSame here. I always make sure I have the cash on hand to pay for debt if I'm somehow out of income, but if I can get a 0% interest rate on a TV (or, more practically, the $4000 bed I bought a few years ago since I don't quite understand what the difference between my $500 TV and a $5000 TV is other than marketing)... I can put that money into an index fund and have it grow instead. I think this kind of highlights the issues that GP was pointing out though. I have stellar credit so I qualify for amazing rates. Folks who are perpetually in debt and don't have great credit will always have the worst rates. Being poor is expensive.
- emodendroket 5y agoI just buy things with cash. How much interest is $1000 realistically going to be worth stretched out over a year? Not enough to be worth playing shell games.
- hef19898 5y agoBoth are true. Personally, I don't have the energy to optimize my personal cash flow like this, even when it is a reasonable thing to do. But then I am employed again, with a steady income. I would use those 0% credits, and manage cash flow accordingly, if I were still self-employed so. For reasons other then cash-flow, I wouldn't take a credit for things other then a house or true business investments (as: my company needs a credit as a way of financing).