T’s view is that the government going into debt was sometimes needed and necessary. He doesn’t feel that the current debt is anything to worry about until it starts impacting our ability to acquire more loans, and although a deficit of over a trillion dollars is a crazy high amount, it doesn’t really bother him. There’s no reason to cut benefits from entitlements like Social Security and Medicare – he’d rather cut defense spending if anything at all – and as long as we can continue to get loans it doesn’t matter how high the debt really is. He feels that “no one really expects it to be paid off anyways.”

I disagreed; while it’s true that sometimes debt is needed I don’t think it’s something to blow off or let get out of hand the way it is currently. Our founding fathers worked tirelessly to reduce the debt as soon as possible after the Revolutionary War, and again after every other war. We’ve only been at the $0 mark once, but it’s something I feel we should strive for again. He was of the mindset that it didn’t really matter – and on some level he’s right, but I just can’t agree with that fully and don’t like the idea of “mortgaging our future” to pay for things now – especially when the record deficits are in a relative time of peace, unlike during WWII where the money really was needed.

Then we started talking about personal debt. Again, there are two views: the first idea is that debt is a way to take advantage of opportunities before you would otherwise get the chance. This improves your quality of life because you are exposed to many more expensive things that you might otherwise not purchase or delay purchasing. The second view is that personal debt binds you and the risk that comes with the loans does not counter balance the gain from the items purchased with loaned money.

Here’s an example of the two views in a “real world” situation: buying a car. Say you are fresh out of college and only have $2500 saved up after school expenses and everything else. You want to get a job downtown and you would like a car – it definitely would make your life easier getting to and from work and having job flexibility.

With the first view you would put down the $2500 and loan the rest to get a nice car. This gives you the opportunity to live in the suburbs and drive in down town, and doesn’t force you to rely on public transportation. It also adds a several hundred dollar monthly payment to your budget.

In the second view you have two options: buy a $2500 car that just gets you from point A to point B without dying, or take public transportation until you can afford a better vehicle. You don’t add anything to your budget, but you either lose your hard earned savings or sacrifice for a while living close to work or taking the bus. T chooses the first method, I choose the second.

A car is a large purchase, second to a house in terms of costs, so it might be an exception. However, the same arguments could be made for smaller items as well. Take a television: You really enjoy movies and watch several a week. You want to get a new television, a big 42″ HD model, but it costs $1000 even at Wal-Mart and after buying your car you only have $400 left to spend. You could take out a loan, and finance the purchase (think of all those commercials: “No payments until 2010!”) to get the big television today. You could also get a smaller $400 television since that’s the money you have available. Or finally you could create a “TV Fund” and start saving, so hopefully by the next paycheck or two you have enough for the television you really want. I would probably save for the big TV, while T would take out the loan and get the big TV right away.

T is of the mindset that debt is value, and he would have no problem getting a TV on a loan, or any other purchase that he couldn’t afford right away. To him paying interest on your television does result in added cost, but that cancels out because you get to watch the television for a longer period of time, and you get it right when you want it in a bigger and better model. To me, I’d rather work hard and save money and then buy the television outright two weeks later, than have to worry about payments. Peace of mind is more important to me than having an extra week of Animal Planet. Is one method wrong?, no – it depends on how much you value the TV… or the sofa, or the car, or…

To him a loan means freedom; to me a loan is a burden. The exact same situation and transaction evoked two very different opinions and responses.

Finally we talked about small business loans. Again there are two options, you can take out a loan and build your business quickly, or you can save up and pay cash for your business which will take much longer.

If I were the one starting the business I would do as much as I could to avoid taking out a loan, but if I really needed one I would allow it – only if the terms were right. (I would have to think really hard about the situation)

T had no problem taking out a large loan right away. His view is that everyone benefits: you start your business sooner, the bank making the loan gets money from your interest, and the person you are buying the building/equipment/stock from benefits from the sale. By not taking a loan the bank loses it’s benefits, and you are hurt because you need to delay what you want to do. Again it comes down to the risk and burden you are willing to put on yourself in exchange for the items you want and need. What is the price you are willing to pay for gratification?

After a lively debate I came to the conclusion that I really, very strongly, dislike debt. I won’t force my views on you if you use and enjoy it, but personally it’s something I will avoid at all costs – other than 0% loans, like my credit cards (since I pay them off every month). There isn’t much I can think that is worth the burden of payments
to me. Plus I don’t like the idea of paying “extra” for an item with interest when you could get it for face value.