Is There Such a Thing as Good Debt?

Some say that debt is the gateway to your goals, others say it's a ball and chain that will drag you down... So who's right?

Two Cents on Twitter: @twocentspbs

Two Cents was created by Katie Graham, Andrew Matthews, Philip Olson CFP® and Julia Lorenz-Olson and is brought to you by PBS Digital Studios. We love dropping some knowledge on all things personal finance and helping you make better money decisions.

sources:

Two Cents is hosted by Philip Olson, CFP® and Julia Lorenz-Olson
Directors: Katie Graham & Andrew Matthews
Written by: Philip Olson, CFP® and Julia Lorenz-Olson
Executive Producer: Amanda Fox
Produced by: Katie Graham
Edited & Animated by: Andrew Matthews
Images by: Shutterstock
Music by: APM

[TwoCentsPBS]

Lots of Dave Ramsey fans here, so wanted to address a common refrain re: Dave's stance on mortgages. Many have pointed out that Dave teaches it's okay to get a mortgage if it's a 15-year fixed with 20% down. We knew this going into writing this episode, and wanted to provide some context.


While it's true that Dave repeatedly advises people that can't pay cash for a home (virtually everyone) to get a mortgage, this is contradictory to his overall message of living 100% debt free. It comes across to many as confusing, essentially "You should buy a house with cash, all debt is bad. But if you HAVE to use a mortgage, then get a 15-year fixed with 20% down, and do it with the one debt company that advertises on our show". 

Critics of Dave have pointed out that paying for a house in cash is unrealistic for most. What we didn't have time to point out in the video is that feeling shame or guilt about compromising in getting a mortgage also isn't helpful. And for many people in most cities, 20% down on a 15-year mortgage (while keeping housing costs under 25% of your income) really isn't within reach either. Our point was simply to present popular critiques of Dave's anti-debt stance

As always, thanks for your Two Cents, guys!

[shapikai]

Living on Earth is expensive, but you do get a free trip around the sun.

[needlequill]

I took a personal loan to finance a gaming internet cafe. It was doing great the first year, but then the PCs got old and competition increased and I didn't get as much money from the business. Now with covid it's closed altogether, but I still have to pay the loan. I should have paid down the loan first and also saved finances for renovations. But I was greedy and took out all the money from the business to spend more. Now I work full-time and have to pay down the loan that isn't benefiting me at all. It was good debt at the beginning, but my greed and stupidity made it bad. Just a lesson for you, guys and gals

[eliopalombi]

This might be THE MOST underrated channel on YouTube at the moment.

[RealMelaniaTrump]

This is like Play School tv show for adults. Love it.

[rubdulbah]

I like how this channel introduces supposed financial experts such as Dave Ramsey and Robert Kiyosaki, but also qualifies information about them by giving common criticisms of both authors. It really does promote a holistic view on the subject of finances.

[woahk]

Imagine how that first debt conversation went.

Guy 1: "You owe me money."
Guy 2: "What's money?"

[huskiefan]

The majority of people who use credit cards carry a monthly balance. This is why Ramsey doesn't recommend using them.

[squirrel]

What I've done since I turned 18 was basically use my credit cards like a debit card. That way I'm not spending more than I have, still making the purchases I otherwise would have (even if I used cash or a check) and I'm getting the rewards and other benefits of using a credit card. I don't think this way works for everyone, but I think it can work for a lot of people. This has made my credit rating skyrocket. Plus this way when I have to get a loan later down the road for say a mortgage or have my credit run either as part of getting a new job or establishing a billing account (utilities or cell phone mainly) I get a much better deal without having to give them extra money up front.

[davidliang]

If you have a plan for the money, a plan for repayment, and a plan to deal with it if something goes wrong. But that might be too much to ask.

[sampetrie]

The concept of “good debt” assumes that you can perfectly predict the outcomes of your choices ahead of time (hint, you can’t).

Student loans to pay for a lucrative degree SOUNDS good... unless the economy tanks or you have medical issues and can’t get a job. The house that you think can be rented out for $1300/month sits vacant because the towns major employer shuts down. “Good debt” is identical to “bad debt”. You can only tell it is good debt in hindsight.

[gregcountryman]

Thank you Two Cents for giving answer that isn't one sided. Financial topics like this should always be subjective depending on one's individual financial lifestyle and habits.

[waflletoast]

My Favourite Finance Youtube Channels:(in no order)

Robert Kiyosaki(Rich Dad Mindset)
Graham Stephan(Real Estate)
Two Cents(Personal Financing)
Dave Ramsey(Debt Free Living)
Minority Mindset(Stock Market Finance)
Kevin O Leary(Business Managment)

hope this helps newcomers!!!!

[PiXimperfect]

Love this video, not just because it's high on useful information, but most importantly, it's unbiased and asks you to make your own decisions.

[jmonty]

5:42 "Answering this question isn't usually solved by running the numbers." Aww, so no Run the Numbers section. Those are typically my favorite parts of these videos.

In all seriousness, keep up the great work! I recently completed grad school and your content has been really helpful for preparing me for the real world! :D

[terryeffinp]

I paid off all of my debts, close to 50k worth. It was hands down the best decision I ever made. I don't have to keep track of who I owe what and when, I don't have to remind myself to stop by the credit union each month to pay on my truck. And all of that cash that was going out in payments is available to do whatever it is that I need to do or want to do. It is nice. I could not recommend it enough.

[silverlina]

Julia's face when Phillip was explain good and bad debt 🤣 #priceless

[zinebibanez]

I am in Ramsey' corner. Buying a house up front is the best option that many just do not have; therefore the second best option is buying the cheapest, half decent house on the market and taking on as little debt as you can.

Having the peace of mind of being debt free or with little debt is going to give you a better night sleep than the best bed bought with borrowed money.

[coniccinoc]

I followed Dave Ramsey's steps, mostly anyways, and have had excellent results. Having no debt and an emergency fund gave me comfort when covid struck.

[pallasathena]

Awe man when you said “Robert kiyosaki in this corner” I was like there’s only one other guy it could be in the other corner. 👴🏻=💪💵