Introduction
A lot of people think debt is one of the greatest financial evils out there. We know debt has ugly forms, such as credit card debt (as portrayed by Antonio Banderas and Marissa Tomei in the video) or high mortgages due to unbelievably high interest rates (which Cedric the Entertainer explained). We think that if there is no debt in the world, then there shouldn’t be a problem. If debt is that bad, why then is it there in the first place? Why don’t we just use the money we have today to spend for everything we need? Why do we need to borrow from someone else?
Debt Financing
I am saving up for a bike. The bike costs about $1,500. This is a beautiful bicycle, the best I ever seen and the most I ever wanted. I am still saving up for the bike from my allowance and by working at the store, for $5 per hour. Working at the store is hard, not because the actual work is hard, but because I would rather be outside with my friends doing things I like. Instead I have to tend to orders from here and there, stacking boxes and moving stuff left to right. But at least I have a job and I think I will be working here until the summer this year.
My parents are very supportive but sometimes I think they want me to learn too much too soon. Being in love with that bike, I wanted it right away. So I asked my parents for money. They said I could borrow the money from them and pay them 1 dollar for every 100 dollars I borrow. Sounds easy! For the $1,500 bike, that’s only a 15 dollar additional fee. I can work three days and get the money to pay for the loan I am getting from my folks.
But I got money saved so I borrowed $1,000 instead and promised to pay the thousand dollars plus the 10 dollars of “interest”. Now that I think about it, borrowing money was a good deal compared to working on slaving for a couple of months to get that bike in the future. Working to save that money to buy something today is too difficult to do! Waiting for cash to appear has not been my favorite way to pass time.
The money I put down to buy that bike came from the money I borrowed plus the money I earned and saved. I feel that the money I saved has more value than the money I borrowed, since the money I saved was through working for it and foregoing things I would have enjoyed. The money my parents lent me, they were able to do because they have money from their jobs which may mean they make more than I do now. Because they have that much they are letting me borrow it at cheap “interest”.
Conclusion
This is why debt cannot be removed from our system. Debt works. Debt makes getting stuff possible because often, we do not have the money for it. Sure, we can pay our debt every month but that still makes it easier than pulling out $1,000 that I do not have from my pocket.
The key to making sure debt does not destroy you is in planning. If I could not have a job or would not know if my job would be there by the time I wake up tomorrow morning, it would not be smart of me to borrow money for the bike without any repayment options in sight.
In the future, if and when I make those kinds of decisions about debt, I will look at that bike and tell myself that debt has never been evil, it is the abuse of debt that is.
