Is Debt Dumb?

Power Financial Group |

If you have ever listened to Dave Ramsey, you’ve probably heard him say, “Debt is dumb, cash is king, and the paid off home mortgage has taken the place of the BMW as the status symbol of choice.” So here’s a question for you to ponder today: Is debt really dumb?

Debt has become a way of life for most American families. Borrowing money to finance a lifestyle is no longer considered risky or out of the ordinary - it is the new norm. As a matter of fact, 80% of Americans have more debt than assets. According to the Federal Reserve, credit card debt in our country now totals over $1 Trillion. Student loan debt has blossomed to over $1.5 Trillion. And let’s not even begin to analyze the government’s view and use of debt. There is definitely a debt problem in our country and it is having a tremendous impact on our families.

While the financial impact of debt is fairly obvious (or at least it should be), today we want to explore 3 additional negative impacts of borrowing money. The first impact is the economical impact. Lenders benefit from the interest we pay. $1 spent on interest is $1 that can’t be invested (or spent). Compound interest actually works against us instead of for us. The second negative impact is psychological. Borrowing adds concern, worry, and anxiety to our lives. It can also threaten marital security if we are not careful. Lastly, debt has a negative impact on our Spiritual lives. While it isn’t necessarily a sin in and of itself, it does feed our discontentment and is usually the symptom of a Spiritual problem. Borrowing money for purchases may also rob God of an opportunity to provide. And Proverbs tells us that the borrower becomes slave to the lender.

In closing, here are 3 basic rules when considering taking on more debt:

  1. Never borrow money to purchase a depreciating asset.
  2. Never borrow money if you and your spouse aren’t on the same page.
  3. Never borrow money (to purchase a home) on more than a 15 year mortgage.

We encourage you to work towards becoming debt free. You may not even realize today how debt is affecting certain areas of your life. And please let us know if you need help or advice in this important area of personal finance.

Securities offered through LPL Financial. Member FINRA/SIPC.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The opinions expressed in this material do not necessarily reflect the views of LPL Financial.