Debunking the myth of ‘good debt’

Debunking the myth of 'good debt'

Don’t prolong your state of debt by thinking some liabilities are smart to hold.

Think your low-interest mortgage is good debt? Think again. There is some comfort in believing that being in the position of owing money to someone or some company can in some circumstances be “good.” Suze Orman, arguably the world’s most popular personal finance author and guru, explains the supposed difference between “good debt” and “bad debt.” Mortgages and student loans are examples of good debt, while car loans and credit cards are bad. Some debt, like high-interest loans and credit card debt, are certainly worse than others, but rationalizing owing money to others by calling it “good” is a stretch.

When the public is willing to consider any particular type of debt good, the lending industry is the only winner in the long run. For the benefit of our own personal finances, we’ll prosper more by considering all debt bad and striving to eliminate that debt even if we feel it is good.

Don’t fall into the trap of prolonging your state of debt while holding the idea that these forms of owing money are somehow good. Here’s why “good debt” isn’t all that great.

1. Mortgages. A mortgage on a house is a classic example of a type of debt personal finance experts and real estate agents want the world to be at peace with. There is something to be said for mortgages: the reality is that only a small percentage of Americans would be able to afford to purchase a house without access to a loan. The lending industry and the government have historically made it as easy as possible to own a home. We’re not escaping home ownership debt any time soon.

The deeper reality is that the value of real estate increases at or a little higher than the rate of inflation over the long term, but is much more unpredictable over the short term — the length of home ownership most people experience. Some consider mortgages to be good debt because it allows a home owner to be highly leveraged, in a good position for appreciation, but it is risky.

In addition, the tax advantages to paying mortgage interest are frequently overstated. While most taxpayers see an increased refund thanks to the mortgage interest deduction, the benefit can’t compete with not paying interest at all. We’re stuck with mortgages for now, but there’s no solid reason for keeping them around longer than necessary, as one might do with anything called “good.”

2. Student loans. Student loans are an investment in the future; a bachelor’s degree in hand will significantly increase a person’s lifetime income compared with just a high school diploma. Again, the lending industry encourages taking on unnecessary debt, and colleges and universities are complicit.

It is unnecessary to borrow money to finance a college education. In his forthcoming book, Debt Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents, author Zac Bissonnette explains how student loans can be more devastating to an individual’s financial condition than a mortgage. Did you know that bankruptcy can eliminate your credit card debt and your mortgage but your student loan will not be forgiven? Even the government will garnish your social security wages if you default on your student loans.

Bissonnette also shows how there is no good reason to borrow money for an expensive private college or Ivy League university when the quality of education you can receive and your earning potential is matched or bested by an inexpensive, local state college. Reconsider the assumption that you pay a higher price for quality.

3. Start-up costs. Whether starting a business requiring an up-front purchase of inventory or have just graduated college and need to buy appropriate attire for a career, some personal finance experts advise the cash-strapped newbie to anticipate tomorrow’s income and pay for your expenses with a credit card or take out a loan today. This, like borrowing money to invest in something without a guaranteed return, is risky.

While it is often true that success requires taking some risks, consider your options for dealing with the worst-case scenario. Unemployment is still at a high level, and many of last year’s graduates are still out of work with credit card balances increasing. Most new businesses fail.

Even borrowing money to finance assets expected to appreciate like a house, a person’s income potential through education, and a career or business carries risks and in some cases can be fully avoided with smart preparation. You may hear some personal finance experts call these types of debt “good,” but they are far from beneficial. At best, they are like other debt but might help improve your financial condition or quality of life at some point. At worst, however, even this debt can devastate your future if not watched, cared for, and eliminated.

8 ways to make money with no money

8 ways to make money with no money

You don’t always need money to make money. If you’ve stumbled upon this site, chances are you’re looking for ways to make money without dishing out any cash.

Well, the good news is that I’m not about to sell you a get rich quick scheme. What I’m going to show you are ten ways that you can earn some money which don’t require you to outlay much cash.

1. Start a flyer distribution run

Businesses looking for a cheap way to advertise will often resort to flyers placed in letterboxes of nearby dwellings.

While this market is often dominated by large marketing distribution companies, you can edge in on their turf.

Visit some local businesses and offer your services at a competitive rate. A good rate seems to be $20 per thousand for the average suburb.

You’ll need to walk quickly and drum up some work from several businesses to make it worthwhile financially.

Offer a written 100% deliver-ability guarantee to sweeten the deal.

Read more “8 ways to make money with no money”

Are you living the American Dream?

Are you living the American Dream?

The answer depends a lot on your income, according to a new survey.

Despite the “official” end of the recession over a year ago, life remains dull for much of the population: Nearly half the U.S. population does not live what they call the “dream U.S. “according to a new survey published this week.

StrategyOne, part of Daniel J. Edelman PR firm, surveyed 1,008 Americans and found 48% of respondents answered “no” when asked: “Are you living the American dream today?”

In households earning between $ 40,000 and $ 50,000 per year, only 41% responded affirmatively to the question. However, for households earning more than – those at or above $ 75,000 per year – 71% of respondents said they lived the American dream. This supports the idea that money might not be everything, but it helps.

The survey also suggests a lack of faith in the possibility of upward mobility: the 48% who said they do not live the American dream, more than half said they did not think they ever would.

Define the American dream, of course, will vary from person to person. Although stereotyped as one might think of the suburban house, the fence, a family, a sensitive dog and cars, which could be a long way from your own goals and reality. That said, the results strengthen the argument that from an economic standpoint, the locals are mixed in their views, regardless of what the academics argue.

Not surprisingly, official unemployment rate of nearly 10% – and worse by wider measures – and the collapse in housing prices has created considerable uncertainty. However, pockets of hope has been found. “Despite the doubts that were wondering if people have reached or will reach the American dream, 74% believe that the ideal of achieving the American dream and be able to” do in America is largely true and possible, rather than being just a myth. Sixty-eight percent of those households earning less than $ 25,000 per year also share this belief, “according StrategyOne.

The survey revealed that 81% of respondents strongly or somewhat (most were in this camp) “believe that if you work hard and playing” a middle-class life in the U.S. is available, 74 % say success is more a function of hard work, rather than good fortune.

So what’s the takeaway? The American dream is not dead yet, but it’s hard to maintain interest for many of us. Maybe we just need him to, and we find that it is still very much alive, that a different form. Let us know what you think.

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