It’s time for us to move past the archaic debt designations of good debt and bad debt.
Instead, we ought to re-evaluate our debt situations to see if we can find a new paradigm for how we can evaluate the blessedness or burden level of our debt.
The most important thing that must happen is we must recognize that debt brings some sort of negative pain or consequences. It doesn’t matter how much this person or that person rants about debt, too often we put on rose colored debt glasses. Sure, we might acknowledge that there are some potential downfalls identified with debt, but in our mind it’s not that bad or it won’t affect us in the same ways as it affects others.
The very fact we have a term called ‘good debt’ is misleading and unhelpful.
Without clearly recognizing the pain points, we may never have motivation to change our habits. A change of perspective and a change of attitude is necessary for getting out of debt. As long as debt is seen as a good and acceptable way to get a car, a dress, or an education, then we will continue to see debt in a positive light. When debt is viewed from a positive paradigm, we lose our motivation to address our debt problems.
Indeed, debt can be a better alternative than other options. That still doesn’t make it good debt. Would I rather have a reasonable amount of debt (say $20,000) and a college degree, or would I rather have no debt and no college degree? I’d choose to have the debt and the degree. Still, I must recognize that the debt is not ‘good’. It might have been the best option at the time, but now that I have my degree the debt is not the best situation for me. Life would be better without debt.
The Problem with the Good Debt/Bad Debt Labels
Clearly, we all acknowledge some debts as bad debts. These are the ones that are riskiest, most devastating, and have the highest interest rates.
Since we can agree that there are bad debts, we think the obvious conclusion is that there are good debts.
Is a house mortgage a good debt? Conventional wisdom will say yes.
The result is that we teach ourselves not to care about paying off our house debt because it is ‘good debt’. Why would you want to pay off something that you categorize as ‘good’?
A Better Paradigm for Looking at Your Debt – Better/Worse Debt Labels
I think the ideal that we, as Christians, should be striving for is debt-free living. This would involve a complete absence of all debt – even so called ‘good’ debt. There is no debt that is so good that it’s better than having no debt.
If you had to choose a car with debt or a car without debt, which would you choose? I’d pick the car without debt. Debt free is better than good debt, which means compared to debt free living, even good debt is bad debt.
Applying the Better/Worse Debt Paradigm to Your Own Journey Out of Debt
Look, I’m not trying to have a theoretical discussion here. I’m trying help you see that debt might not be as good for you as you think. Here’s how the information in this post can help you.
Step #1: List all your your current debts (not the amounts, just the places you owe money and the general category of debt). In your list be sure to to include an item on the list that says debt-free.
Step #2: Put each debt beside one other debt. If it is a better debt (less risk, pain, or negative consequences), then move that item lower down the list and put it beside the next item.
For example, let’s assume John has the following debts:
- House Loan
- Car Debt
- Credit Card Debt
- Personal Debt to a family member
- Debt Free
John compares the house loan to his personal debt and determines that he’d rather have his house loan than his personal debt. He then compares his personal debt to his car debt. He then compares it to every item on the list. This way John clearly knows which of all his debts is the ‘worst’.
The beauty here is that John gets to use whatever criteria he wants to determine which one is the worst. The reason is that whichever one he recognizes as the worst will have the strongest pain associated with it and will most likely be the one that John is most motivated to pay off.
At the end, John might have a list that looks like the following:
- Personal debt to a family member
- Credit card debt
- Car debt
- House loan
- Debt Free
Step #3: Create an action plan to pay off the worst debt first.
I can almost promise you that if you continue to call some debts good you’ll never have the motivation to pay off those debts. However, if you ask yourself if you would rather have a house loan or be debt free, I suspect you would acknowledge that being debt free is better than having a house mortgage (usually called a good debt).