The False War On Debt …

There’s a war raging out there: it’s being fought by authors and bloggers everywhere.

But, is it the right war? Is it a just war? Or, are we just throwing ourselves, by the millions, into a hail of fire: exploding spending, rampant inflation, the death of social security?

Sure, as we sit in the relative safety of our trenches (at least, that’s what we tell ourselves, until a random mortar shell of job loss or unexpected expenses chooses to lob our way) this is not OUR future … it’s somebody else’s, or it’s too far away, or it just can’t happen …

The sad truth is that legions have jumped the wall before us and have been brutally cut down for lack of an adequate nest-egg; it’s sad to see them go over the dreaded wall of retirement (be it their time, or forced on them early) without an adequate safety net … when they do, it’s as though their grim fate had already been sealed.

Broke – or ‘just’ financially crippled – and unable (for financial reasons) to live life as they had hoped, they are a sad, sad lot.

You see, the war that they fought wasn’t – isn’t – a just war. It’s not even a war … well, it shouldn’t even be more than a skirmish.

It’s the War Against Debt!

When it comes to that war, I’m strictly a pacifist; isn’t it better to simply avoid BAD debt?

Of course, that doesn’t mean that we can’t … shouldn’t … defend ourselves.

Far from it: if we find that BAD debt has snuck through our defences, let’s keep an eye on it. And, if we find that it’s also EXPENSIVE debt, then let’s whip out the Big Guns and wipe it out. Quickly, surgically …

… but, let’s not commit Debt Genocide.

You see, unlike the well-intentioned, but largely Debt-McArthyist “ALL Debt Is Bad, So Let’s Wipe It Out” rabble out there, let’s first ask The Missing Question:

What will you do after your debt is paid off?

“Well, start investing of course!”

But, does that REALLY happen? Who better to ask than Money Reasons:

This past February 2010, I became totally debt free, but now what!

I thought that there would be a period where I would break even for a while, and then start to plow about $1,000 extra each month into investments!  So now that it’s seven months later and how much extra did I save or invest?  Not a single cent!

Hang on, the whole purpose of suiting up for battle – for going to war against debt – was so that you could start investing, right? What’s up with that, Money Reasons:

Well it’s been a matter of bad luck with equipment breaking down and needing replaced and spending too much for our past vacation to Hilton Head Island!

But it’s also been a subtle form of LifeStyle Inflation!  Thinking back now, I realize that when wants would arise, I would just go ahead and buy it.  Yeah, I thought about it a bit, but I knew that I had the cash.  Then when your car and lawn mower broke down, I had the cash too…

Money Reasons should have started investing well before all of his debt was paid off … he should have started investing as soon as his expensive debt was paid off and left his cheap debt on a regimen of minimum payments.

The problem with this war is that it’s an unjust war; as TraineeInvestor said: “Debt is a tool. Paying it off is simply choosing not to use the tool.”

Yes, becoming debt free is simply a tactic

If you have to go and fight a war, don’t fight a war against debt …

… go and fight a war for investment 😉

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11 thoughts on “The False War On Debt …

  1. You underestimate me my friend 🙂

    I have been investing the entire time I’ve been paying off my mortgage early. I have a 401k (fully funded each year), 529, Roth Ira, and a normal brokerage account with an online discount broker.

    I’m a spreadsheet head, so I already figured what it would take to pay for my kids college educations 10 years ago. So that is on track (word to the wise for your readers, make sure you pad that number by 10 or 20 thousand) 🙂

    In fact, I’m also dividend investor. I’m running a small experiment (for over a year) where I take my lunch money, invest it in a dividend stock, then use that money to pay for my lunches.

    I’ve been fortunate to never have credit card debt for longer than a month, so that has given me an advantage, but I have plenty of credit cards… I just pay them off monthly (and collecting the reward benefits) instead of incurring interest charges on a runover balance 😉

    If you want to read a blog that truly hates debt, check out “Enemy of Debt”‘s website.

    As for me, I take more of a balanced approach 😉

    P.S., I like your site, it has merit. Wish I were as brave as you are with the risks that you are taking 🙂

  2. Well, I think the key to this post is that MR says he didn’t save any EXTRA since he paid off his mortgage.

    From the post:
    (So now that it’s seven months later and how much EXTRA did I save or invest? )

    So I am not sure it is safe to assume that MR just plowed all his money into debt and disregarded investing along the way. I have followed his blog for awhile now and I believe he has always been investing, even when he had debt.

    I think investing vs. debt repayment is one of the things that makes personal finance personal. Some people do not feel secure at all with even a penny of debt. Others couldn’t care less if they have debt and took out a second mortgage to invest in the stock market bubble. As long as I am not bailing the person out, I don’t care what they do. I just want them to spend less than they earn!

  3. @ MoneyReasons – Sorry to put you on the spot; obv just from reading one blog post, I know nothing about you.

    But, the general point is that paying off debt IS investing, because interest saved is exactly the same as interest earned (tax and ‘personal comfort zone’ issues aside).

    @ Everyday Tips – Yep, you’re right: personal finance IS personal and this blog is purely aimed at those whose goal is to reach an atypical large Number (a.k.a. nest egg) by a very early Date (a.k.a. retirement date) …

    … in order to do that, you will usually need to be prepared to make the BEST financial decisions … these are not always the most risky but may very well be the most uncomfortable.

    You see, I believe that – unless already close to your retirement number and/or date – deliberately accepting a lower return (by, say, paying off 2.5% student debt instead of making an investment that will return, say, 10% a year) is also risky … and, if not downright stupid, then financially naive 😉

  4. I’m not going to disagree with you about the interest rate you provide above and the value of investing. Hell, I’ve had common stock since I was 6 years old and every year thereafter (initially bought by an uncle for me)…

    Plus, I have a BS in Computer Science, so I know my math 😉 And did I mention that my wife is an accountant?

    But for the majority of people, there is always something that will eat up that money if they try to save it for investing (as my example in the blog post you reference above demostrates).

    So for the majority of people it’s more intelligent to get rid of their consumer debt (note that I didn’t say investment debt) and at the same time invest in retirement and for their kids future college expenses (this is what I did)…

    Not to deviate, I think you are calling me a cat when in reality, I’m a wolf… Easy to confuse from a distanct (like reading 1 post), but once you get up close, a totally different animal, even if both do walk on four legs!

    You see, I actually come from a family of entreupreneurs, and I know how they leverage debt for their businesses. But I also see them work 80+ hour a week and there kids grow up not really knowing them as well as they should. So I’m quite content with a more balanced lifestyle and having my kids know me.. whether it’s stupid or no in your opinion…

    Well enough analogies for me tonight, have a good one! 😉

  5. “[for] the majority of people, there is always something that will eat up that money”

    Then the majority of people have less financial intelligence than we initially thought … luckily THEY don’t read this contrarian blog, so remain blissfully unaware of their cat-like financial slumber 😉

  6. “I like debt – it makes me work harder.”
    – a quote from a very successful real estate agent and investor I know

    If someone lacks the discipline to invest after paying off their debts, then surely the solution is to borrow more money for investments and create a situation where, once again, debt repayment becomes a form of forced investment.

  7. Say, I’ve been reading some of your recent older post, and you have some pretty decent articles here!

    When I have time, I’ll have to rumage though your older stuff, perhaps I will change my current risk model (at least a little) and come away with some new ideas…

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