Good debt verse bad?

I addressed this once before but am going to address it once more. There’s plenty of articles on the web talking about good debt. Usually these stories tell you that owning your own home is good debt because its an asset that continues to go up.

There are two fallacies in the home argument (full disclosure I still owe money on my home and plan to have it paid off in less than 2 years).

There’s an assumption if you’re renting you’re throwing away money because non of it goes toward the principle of your home like when you have a mortgage.

Here’s the fallacy in the argument. When you take a loan out for a home the loan is amortized over 30 years (there are some loans for 15 years). Without trying to confuse you I’ll give you a simple definition of amortization. If you take a loan out for 30 years each month your payment is figured based on how much money you owe over the entire 30 years.

If you borrow $100,000 for 30 years your first payment (7% interest) is $665.30 ($583.33 interest, $81.97 principle). The following month you’ll owe $99,918.03 principle. You don’t have to be a rocket scientist to figure out you’ll be paying a ton of interest for the first 15 plus years.

By the time you’ve had the loan for 30 years your home (that originally cost $100,000) will cost you $239,508 dollars ($139,508 in interest).

There’s no such thing as good debt verse bad debt. You either owe money or you don’t owe money. It’s a life-style decision. No debt is the easy way of living. Owing debt is a rough way of living.

David…