Is Total Debt Avoidance Really Best?

Posted on September 28, 2007 by Melissa 
Filed Under Debt

“All debt should be avoided”, “We should all try to live completely debt free”, “Don’t pay interest for anything”.

I feel like I’ve been hearing this debt-free mantra everywhere lately. Living debt-free is a fantastic goal to strive for.

Debt, as a general concept, is a negative thing to have. Having no financial obligations and enjoying complete freedom in how you spend your money is ideal. But when going into debt is the only way to achieve something you feel is truly worthwhile (within a reasonable time frame) is it still to be avoided at all costs?

I think there is a balance to be found; a balance between living below your means and enjoying life and what’s important to you. While debt can have a negative impact by decreasing your ability to build savings, some debt can actually enable you to further your career, build wealth, and acquire property. Following blanket statements like “never incur any debt” could mean missing out on these opportunities.

Let’s look at two situations where a no-tolerance debt avoidance policy could mean serious sacrifices:

Higher Education

Graduation Day!Many people rely on student loans in order to attend college. College is expensive and many students straight out of high school have a relatively low earning potential. At that age, it can be a real challenge to have the money to attend a university without financial support. Even for those who do get scholarships and grants sometimes it isn’t enough to cover all the costs.

Should people who do not have the money saved up to attend college simply forgo seeking that higher education to avoid student debt? Is remaining completely debt free worth passing up the opportunities having a degree could give?

Granted, you don’t need a degree to do well for yourself in this world. But a degree does help open doors, especially when more jobs are requiring a college degree now. An education can increase your earning potential and allow you to pursue specific career aspirations (like becoming a doctor). Being saddled with debt after leaving school is difficult but if having a degree can help you reach your career goals (and potentially your life goals) perhaps that is a debt worth enduring.


Many people simply can’t afford to buy a home outright. Home ownership is a common and deeply ingrained dream for many Americans. The reasons for wanting a home vary and in my opinion home ownership is a good goal to have. Over time, real estate generally increases in value and there are many benefits (not only financial) to being a home owner.

Should families whose dream is to have their own home really postpone home ownership until they can save up the entire cost of a home to avoid a mortgage?

New Home I was able to find some 1960’s fixer-upper homes for sale for about $80K near the city. That was the absolute low end of the scale excluding mobile homes and condos. $80K is a lot of money to save up in addition to other saving goals like retirement, especially if you earn less than the median household income in our area of $43K a year. It can be done, of course, but it would likely take years and serious sacrifice.

We live in a modest home in the suburbs outside a major city. The homes in our neighborhood are about 8 years old and average for around $160K now. If we were to save aggressively – $1K a month – it would take us almost 17 years to reach that amount (assuming 4% interest and 3% inflation). That’s a long time to wait just to avoid that mortgage and every year home prices continue to rise.

For me, I’d choose to get a mortgage I can safely afford and pay it down aggressively. Yes, I’ll incur interest and that is “wasted money” but I see it as a fact of life in order to achieve the goal of home ownership for my family. In my mind it becomes a choice between wasting money paying interest and wasting time by holding off for years until I can afford to buy the home in full. I guess it depends on what you see as more important.

Really, it boils down to choice and finding what is important to you. Blanket statements like “never go into debt” might not be the best path for everyone if that means missing out on potential wealth building opportunities like going to college or owning a home.

I think the key is allowing for debt that is “wealth-building” while trying to pay it down as soon as possible. Avoiding all other debt that decreases in worth (e.g. credit card debt and car loans) is absolutely essential.

Image Sources: omniNate, yellowbkpk


9 Responses to “Is Total Debt Avoidance Really Best?”

  1. Moneymonk on September 28th, 2007 3:59 pm

    Yeah, it’s always good debt and bad debt.

    The 2 you listed House and Student loans are the good debt in my view. But it is sort of like a one time debt.

    Of course credit cards and other loans are bad debt.

    I know people that are debt free and are still broke. Why? because as you said no college degree and no ownership of anything = no wealth.

  2. Melissa on September 29th, 2007 1:27 pm

    Moneymonk –

    Yes, good debt vs. bad debt is important. There are more than just these 2 when it comes to good debt. It’s too bad about your friends, but I can completely see why they would be in that situation. Some level of good debt is almost required to get ahead. If you can get by without it and still do well, that’s great, but don’t forgo doing well just to avoid debt!

  3. Marsha on September 29th, 2007 2:38 pm

    I, too, have heard of the good debt/bad debt distinction.

    I also believe it is important to have some liquidity (i.e., actual cash on hand). I just think it makes sense to have some emergency cash. In theory, I suppose credit cards could be used for emergencies, but I favor maintaining some liquidity. I have no idea if financial experts would agree with me.

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  5. plonkee on October 1st, 2007 12:31 pm

    I think that debt is ok if you are comfortable with the impacts of it, and the purposes that you are using it for mesh with your goals. Otherwise its bad.

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  7. Melissa on October 2nd, 2007 12:11 pm

    plonkee –

    I agree, I think it is all about choices and being fully aware of the consequences of our decisions.

    Thanks for commenting!

  8. Debt Free Revolution on October 3rd, 2007 10:45 pm

    I don’t see it as a “good debt/bad debt” equation: I see it as the lesser of evils to take out a mortgage or (small!!!) student loans, then paying them off as quickly as possible.

  9. Melissa on October 5th, 2007 9:50 am

    Debt Free –

    I agree, sometimes it becomes a matter of which option is less painful. Paying interest on a mortgage or not reaching the dream of home ownership?

    Thanks for the comment!


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