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Overview
| Artifact ID: | 2587e7a304a211ff69b5489b974f3eba1e489b1131710aaa486f840fd989ec48 |
|---|---|
| Page Name: | Debt |
| Date: | 2021-04-12 18:34:42 |
| Original User: | zie |
| Next | 2398d535ec6789d350f4c5617ff6ac623e3504b0eb72abfa030e300ee5b90b3a |
Content
Debt is an interesting tool.
In general debt is bad for you. Debt is mathematically a negative bond. If you own bonds, you should probably sell all of those before taking on debt. All of that said, there are sometimes good deals on debt and occasionally debt isn't a terrible deal.
The math behind debt is pretty easy, for $X of principal, you are charged Y% interest(per year) until all of $X(the principal) is paid off.
Debt is a good deal if you can almost risk-free make more than Y% interest on $X principal. That's not an easy thing to achieve, but it does happen on occasion.
Some situations where debt can make sense:
- If the rent/buy for a house works out to a buy and you can find a good interest rate and you are not over-buying your house, then a mortgage makes sense.
- Education, assuming it's in a field that will let you pay it back in a reasonable amount of time. I.e. debt for a degree in napping probably won't work out well for you.
- True Emergencies(i.e. needing to put actual food in your actual tummy) Debt to buy Coffee is a terrible idea.
- 0% interest car loans (assuming you aren't buying more car than you can afford, and you already have a good deal on the purchase price).