Dear daughter,
This is a common question nowadays, is debt worth it?
There is a short answer for it, I’ll recommend you not to borrow money. But as with almost anything in life, it depends.
Let me give you a few examples so you can understand my point of view, or at least get more information.
Is student debt worth it?
Let’s say you want to go to the university to study. And the only way you can do it is by getting a student loan. I’ll say in this case is worth it. Because I understand the benefits of studying and having a career. You just need to be careful when choosing a career.
Even if you can consider this type of debt worthy, it is avoidable. I, as your father, must make sure you don’t have to get a student loan to get to the university. As Dave Ramsey will say “bad daddy” if I don’t guarantee your studies, lol. Fortunately for you, you finished your degree in software engineering, and you don’t have a student debt to pay. That’s great!
Is car debt worth it?
Another situation where you might think about getting into debt is when you start working and you want to buy a car. Should you get a car loan?
My answer to you here is straightforward, no.
You don’t need to. You just started working, you didn’t have until today. You will be better off if you wait a few months, save enough money, and buy a secondhand car. Don’t repeat the same mistake I made. Here is a lesson a learned after using debt to buy my first car.
Is a mortgage worth it?
A common place to be regarding debt is considering buying a house. We all need a house, especially when we decide to start a family. In this case, my feelings are mixed.
Here is the reason why.
Two years ago, I bought a new house. Now I have a mortgage to pay. In the beginning, it feels great to be in a new house. It has all the space I need. I even use a room to have a home office. The office is important for me because I have a couple of side hustles that I really love.
Also, there is enough space for gardening which I also love. I even start planting some vegetables and aromatic plants that I use in the kitchen.
All that extra activity makes me happy and keeps me busy.
So far so good.
Now the bad part. The mortgage I have is for 20 years and my current job is a contract. I still have a few years left, but still, it is a contract with a predetermined date of ending. Also, the COVID pandemic has forced many businesses to close. The consequence? Many people are without jobs, and unable to pay their debts.
Now I’m starting to see the problem of the mortgage. What happens if the time comes when I cannot pay the mortgage anymore? I’ll lose the house and all the money I already pay.
This type of uncertainty can nullify all the happiness you have and cause stress to anyone.
But don’t worry my daughter, I have a backup plan and, even though no one can predict the feature, I’m as sure as I can be that everything will work out well.
What I’m doing now, to tackle this, is to make extra payments into the mortgage so I can finish early. According to my calculations, by doing what I’m doing now, I’ll save half of the interest I have to pay to the bank, and I’ll be out of debt very soon. In this letter, I explain to you how to do these calculations and also share an excel template so you can play with the numbers.
The problem with not getting into a mortgage is that one must delay all those nice things I mention above until all the money is there to buy the house. The benefit of waiting is that you don’t need to think about a backup plan for the mortgage. However, backup plans should always be in place, bad things happen, and we should be prepared.
This is my feeling about the mortgage.
Other types of debt
Other types of debt are strongly linked to consumerism.
These are a must-avoid at all cost type of debt.
The more common ones are:
- Clothing account. Used to buy expensive clothing that people cannot afford.
- Home appliances. Used to buy home appliances that people cannot afford. Like TV, fridge, etc.
- In general, buying things in accounts.
- Car loan. Here, I tell you a story of how I had to reject a temptation that came on my way related to a car loan and being in debt.
The types of debt I mentioned above might not be the ones that somehow crossed your mind. But you can use the descriptions above to apply them to your personal thoughts and feelings.
Do you understand now why I must answer it depends on the question is debt worth it?
If you want more details regarding my story with the mortgage, please ask me. I’ll be more than happy to expand on my thoughts about it.
In my case, I didn’t have anyone who could explain these things to me before I got into it. But you have!
You don’t have to do the same I did or do the opposite I did.
All I want for you is that you use my experiences, so you can build your life by making fewer mistakes than I made.
Love you, dad.