I’m sorry, but I just can’t buy the idea of “good debt” versus “bad debt”. As far as I am concerned, all debt is bad, end of story. The idea of “good debt” is based on one of the subtle fallacies that permeates modern life and serves to reinforce a narrowly economic view of life. The idea of “good debt” is predicated on the assumption that the point of life is “wealth building”, a term that is pretty badly defined by those who like to throw it around.
The most often touted example of “good debt” is a home mortgage, as typified by this quote:
Mortgage debt is good debt. You’re borrowing money, but you’re getting a tax advantage and can write off interest on an asset that’s appreciating over time. Plus, you get to live there.
– John Waskin, CEO of Bill Free / American Credit Counselors
I get to live there? That’s the afterthought, Mr. Waskin? Last time I checked, my home was slightly more important to my day-to-day well-being than a tax-advantaged loan. Oh, and there is the fallacy of real estate appreciation as a source of wealth. For most people, who are unlikely to move from the area in which they are already in, the appreciation of their real property is likely to be roughly equivilant to the other properties in the area.
Of course, a home for its own sake isn’t the only “good debt” according to these guys:
If you take a home equity loan because you have 17 percent credit card, and you go with a 6 percent loan that’s tax-deductible, that’s good debt.
– Robert D. Manning, a professor of finance at the Rochester Institute of Technology
Right there is the kind of silly double-speak that draws so many people in and makes them feel good about making bad decisions. As if somehow risking your home in order to make your bad purchasing decisions easier to finance so you can make more bad purchasing decisions is a good thing. Sorry, but even by their own twisted logic, the “bad” debt must necessarily transfer its badness to the “good” debt, turning it “bad” as well.
This is especially true in my neck of the woods. Real estate prices are so high, not to mention post-Katrina hurricane insurance premiums and ballooning property taxes that I can literally rent the exact same floorplan I am in now for about 60% of what I pay now into my mortgage.
So, I am getting ready to put my money where my mouth is, and get out of my mortgage and become a renter. My plan is to, as soon as possible but no later than eighteen months from now, have finished everything I need to do to wring maximum money out of this house and get it on the market right about the time this part of the county gets annexed.
This is a short-term opportunity, and to my way of thinking, is the exception that prooves the rule. The only way I can take a profit on this property is to not buy in this market again. So the money will do something else. We have a year to decide what.