My daughter's "Finance" professor told the class that "debt is a tool"

A new car is a depreciating asset. It depreciates thousands of dollars the second you sign the papers and drive it off the lot. Even at 0%, you will lose money on a new car. You are not "gaining" money vs inflation, therefore it is bad debt. A home might be good debt because it usually appreciates with inflation, but home loans are not 0.9%, they are 3.5% or more so you are still treading water even with a tax deduction. This is one of the big fallacies of the US economy, that homes are "investments". They are only investments if you add value and sell them, not if you live in them. Even the big run up to 2008 was a false peak. We are now finally beyond that peak, but people can't afford housing so it will fall again. Long term averages are the only reasonable measure and they closely match inflation. We have allowed ourselves to become a society of debt. We get student loans to get a college education that often does not justify the loan and means that graduate is required to work for that debt for the next 20 years. That is called indentured servitude. Cars are disposable assets and should almost never be bought with any amount of interest. The losses are then compounded. Don't even think about getting in an accident, you will be financially crushed. Housing is a need and getting a mortgage makes sense if you plan to slowly pay that debt down and later have a "free" place to live in your later years. But we have taken it as a given that there will always be a monthly payment so people don't pay off loans anymore. This means people will never be able to retire. This country is in for a very rude awakening as zero pension, all 401K people retire. The average 401K value amounts to living expenses for less than 5 years even without paying for housing. And most people don't pay off their house.

Car loans wrote:

Car loans are not good debt? Are YOU kidding? Kindly explain how, e.g., a 0.9% car loan in a period with 2%+ inflation is not amazingly good debt.

Hmmmm... wrote:

You might as well say that opium is really awesome if only used really wisely and in moderation.

Wow, so you have a tiny house AND you've never smoked opium?!? Dude your life is a real bummer.

Car lone wolf wrote:

Car loans wrote:

Car loans are not good debt? Are YOU kidding? Kindly explain how, e.g., a 0.9% car loan in a period with 2%+ inflation is not amazingly good debt.

Maybe on a used car, but new cars lose about 30% value the first year.

For someone who keeps a car 10 years, depreciation is pretty meaningless especially in the first year.

GhostofTedKennedy wrote:

Lumpkin County wrote:

Silly goose;

Rojo is a tool.

Debt is debt.

Why then does which Apple has more than $250 billion in cash, still have bonds on its books, along with other liabilities such as mortgages and leases? Bad management, I guess.

And rarely pays a dividend...

A car may be a depreciating asset, but it is a long term asset.

You get use out and derive value form it of it for longer than you pay for it.

Hmmmm... wrote:

Yes to all who say debt is useful "in the right hands". News flash: the sky is blue. You might as well say that opium is really awesome if only used really wisely and in moderation. Like I've said multiple times already, debt is seductive and so easily available that it is leading to a state of perpetual servitude and relative poverty by much of our society. Can you look past your own noses to see these obvious truths?

I'm looking for a nuanced conversation that goes beyond simpleton logic about being smart with your mortgage and car loans. Oh wait, this is LRC...

Opium will be an upgrade for you. Now go back and read the OP. Then create your own thread where you can have your drug-induced "nuanced conversation". Let us know how it works out.

YouAreADipstick wrote:

A new car is a depreciating asset. It depreciates thousands of dollars the second you sign the papers and drive it off the lot. Even at 0%, you will lose money on a new car. You are not "gaining" money vs inflation, therefore it is bad debt.

Car loans wrote:

Car loans are not good debt? Are YOU kidding? Kindly explain how, e.g., a 0.9% car loan in a period with 2%+ inflation is not amazingly good debt.

I just read through this thread and there is a lot of stupid and a lot of smart on both sides of this discussion.

I don't have anything in particular to add, although I am in the obvious boat of "personal debt is a good tool in the proper hands".

I wanted to comment on the above statement: STOP REPEATING IT IN THIS DISCUSSION.

This thread was about whether personal debt is a tool or not. The above comment is not discrediting the statement that personal debt is a tool - it is better served in a debate whether buying a new car or a used car is better. You said it yourself "even at 0% you will lose money", so even if you pay cash you will lose money. But saying something is a bad investment does not mean that "personal debt" is not a tool.

That is all, continue the back-and-forth.

Another fine example of cogent and well-supported argumentation by an esteemed LRC financial guru. Nice! Is the sky blue in your world? Enjoy those school loans kiddo. You'll have them paid off by the time you're 45 or so.

Stop smoking crack! wrote:

Opium will be an upgrade for you. Now go back and read the OP. Then create your own thread where you can have your drug-induced "nuanced conversation". Let us know how it works out.

I haven't read the entire thread, but debt is often necessary to get one to a place in their life where they have permanent shelter and owe nothing to anybody (except property taxes, which are an entirely new rant).

Please don't trust anything preached to you by a college professor. After you're out of school for 10 or so years, you'll understand why.

You'll also have flushed that left-wing dogma out of your skull.

Hmmmm... wrote:

Yes to all who say debt is useful "in the right hands". News flash: the sky is blue. You might as well say that opium is really awesome if only used really wisely and in moderation. Like I've said multiple times already, debt is seductive and so easily available that it is leading to a state of perpetual servitude and relative poverty by much of our society. Can you look past your own noses to see these obvious truths?

I'm looking for a nuanced conversation that goes beyond simpleton logic about being smart with your mortgage and car loans. Oh wait, this is LRC...

Yes to the idea that debt can be seductive and so easily available that it is leading to a state of perpetual servitude and relative poverty by much of our society. For you who say debt is a bad idea "in the wrong hands". News flash: the sky is blue. You might as well say that hammers are terrible if used to smash open the skulls of innocent people.

Dave Ramsey, CFA wrote:

If Finance professor knew so much about building wealth, then why are they working as professors? Think about that. Any finance professors want to compare bank accounts with me? Didn't think so.

That's why you have to look at the professor's resume. Do they have success in business? There are indeed professors who spent most of their time in the real world but teach in later years for various reasons: enjoyment, networking, etc. And then there are professors who are pure products of academic bureaucracy and their achievement consists of being the most devoted followers of the rules (and bullsh--) of academia.

Flagpole sure has the board riled up with this one.

Mr. Obvious wrote:

Flagpole sure has the board riled up with this one.

Mission accomplished, I guess.

Gramps wrote:

Mr. Obvious wrote:

Flagpole sure has the board riled up with this one.

Mission accomplished, I guess.

Not so sure about that. I count 3 guys who appear to be taking this topic seriously. Everyone else is just having fun making fun of everyone else.

Typically the finance charge is about $1000 and you could get the car for a better price if you made them a cash offer. Plus a car does nothing but depreciate (and used car values are predicted to plummet in the near future). You are better off buying a less expensive car and actually investing in something worthwhile with the money you saved.

Car loans wrote:

Car loans are not good debt? Are YOU kidding? Kindly explain how, e.g., a 0.9% car loan in a period with 2%+ inflation is not amazingly good debt.

it's a bad debt because you paid too much for the car. you wouldn't have gotten such a low rate otherwise.

Does he pronounce finance "FIN-ANTS" rather than "FINE-ANTS?"

Debt is not evil. As the finance prof said, it's a tool. You can use it wisely or your can use it foolishly.

"That mortgage is great until you're underwater on the values right?"

What does this have to do with debt? If you purchase a house which falls in value, it's pretty much irrelevant if you paid cash or financed. If you are going to live there forever, then it does not matter. If you plan to leave you can have a short sell or just walk away.

"That student debt is cool until your salary is so low that you're going to be impoverished until you're 50 years old."

Again, this has nothing to do with debt. Is it any better if you waste your own money or your parents money to get an education which you do not use to benefit your career?

"Those credit card miles kick ass until something happens and you fall behind and have to make high-interest payments."

Credit cards are a tool. They allow you to not carry cash, get some points, and to have some consumer protection. I would never advocate carrying a balance on your credit card. You should only do this as a last resort.

You've also brought up car loans. Right now, car loans are cheap. Less than 1%. I can make 1% in the back. Or 3-4% in dividends. Plush, I'm paying back with cheap money, as the inflation rate is higher than 1%. I have the money to pay off the car loan any time I want.

"I'm looking for a nuanced conversation that goes beyond simpleton logic about being smart with your mortgage and car loans. Oh wait, this is LRC..."

I think you are the one putting forth the "simpleton logic". You're logic is some people use debt unwisely, thus ALL debt is bad. You can see the logical fallacy here, right?

Fact is, many here have used debt wisely for the better. I too have paid off my house, but I carried debt on it for many years. I could not have done it any other way. I simply did not have the cash to pay it off.

I never lost sleep over it. Not once.

I've bought cars on credit I could have wrote a check for (though all vehicles are paid for now). I currently have financed solar for our home. Again, though I could have paid cash.

Debt is not seductive. Stuff is seductive. People use debt to buy stuff. Shouldn't we get rid of stuff? Isn't stuff the actual problem? If there was not stuff to buy, then people would not go into debt. Stuff is evil. It's leads to the perpetual servitude and poverty.

Lets get rid of cars first. They are too seductive. Some people can't afford then and they will use debt to by them.