My Feelings On Debt

A reader commented that I should get a student loan in order to finance my upcoming course., this got me thinking about my feelings on debt.

I am extremely uncomfortable with the concept of debt. I believe that one should live only within his means and that there are only a few circumstances under which it is OK to use credit facilities.

The purpose of credit is to allow one to extend the amount of money he can spend on the understanding that this money will be paid back within a fixed time period.

Going into debt places one at a higher level of financial risk then I am normally comfortable with, so I have a set of conditions that must be met before I will even consider entering debt.

  1. Immediate Need
    I will only enter into debt if it is absolutely imperative that I acquire the good or service immediately. This rules out things like laptops and other luxury items which are nice but not strictly necessary.
  2. Funding Feasibility
    I will investigate and give preference to any non-debt-incurring means to fund my purchase including saving more or spending existing savings
  3. Value Over Time
    The item must retain a significant portion of it’s value over the medium to long term in order to justify a debt. I see no point in entering into $2 000 of debt for a computer which will halve in value before I pay it off in full

Below is the result of me applying these rules to various things I want right now

Item

Immediate Need

Funding Feasible

Depreciation Risk

Enter Debt

Course Fees

Yes

Yes

Low

No

MacBook

No

Yes

High

No

House

Yes

No

Low

Yes

TV

No

Yes

High

No

I won’t get a loan for my course because I can afford to pay for this portion of it in cash and because doing so and failing would leave me worse off than simply failing without the loan because I would be unqualified and in debt as opposed to simply being unqualified.

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