Just read an interesting discussion in the Chat Forum. There someone had come in to ask the cheapest way to borrow £3,000 for a horse. They explained they’d spent years repaying debts, were now debt free, had reasonable income and wanted a horse.
The mass reaction was ‘save up for it’. Which is of course a sensible philosophy, and many were reticent to give a practical “how to borrow??? answer. Much of this stems from, paraphrasing one poster, “we all dream of being debt free and hate the idea of someone who has done it getting back into debt.”
Now I have to say while I understand this, my philosophy has always differed slightly. I believe debt isn’t bad – bad debt is bad. Borrowing money in order to have something now, that you’d otherwise need to wait for, isn’t automatically wrong.
Of course it needs some major precautions. You must:
a. Do a budget and plan for it
b. Be able to comfortably afford the repayments
c. Ensure it’s at the cheapest possible rate
d. Evaluate the premium you pay to have it now, rather than wait for it (i.e. the cost of the interest over the period)
Having gone through all that, provided it’s a rational, controlled, planned decision, it is a question of personal choice. Real problem debts tend to stem from three main things:
i. Unexpected change of circumstance
ii. Habitual overspending; those with debts who can’t say ‘I spent it on this’ who just simply spent more than they earned, unplanned and expensively
iii. Ignorance; people who borrowed without understanding the true impact of it and the fact that if you owe money you have to repay it.
Debt is like fire, use it correctly and it can be a useful tool, make one tiny mistake and you can be horrendously burnt.
The articles on this site (see the Credit Card, or Banking and Loans sections) follow a deliberate philosophical decision. I prefer to show people how to borrow correctly, because people do borrow. It’s easy to say ‘don’t do it’, but people will, so it’s important that everything is taken into consideration. That’s why the debt articles here, while always indicating that you must be sure you’ve really thought borrowing through, then run through how to do it cost effectively and with as little problem as possible.
Companies borrow, governments borrow and individuals borrow. It‘s our fast-moving society. People don’t baulk at the fact others have a mortgage, which is of course a simple debt.
Many would accept, “I need to borrow so I can have a car to get me to work and take my kids to school as there’s no public transport, and without it I wouldn’t be in work.” Providing all the criteria above are met, many people would understand the legitimacy of this.
So you see, where people draw the line with borrowing must be personal choice. It’s tough to dictate. You can caution and suggest, and ensure people truly consider the costs, risks and benefits, but to categorically say “don’t borrow???, isn’t realistic or even necessarily advisable in my view.
So I will continue to show people how to borrow, cheaply, cleanly, and as much as possible (i.e. assuming no change in circumstance) safely and will shriek at those who borrow without thought. This is why, for me, debt isn’t bad; only bad debt is bad.