Debt = a useful tool

Debt is (insert adjective here)

Take a moment and think about your debt. Your credit cards. Your mortgage. Your car loans. How does it make you feel? Anxious? Hopeless? Indifferent? This is probably not a pleasant feeling for anyone. Facing our obligations is definitely no fun, especially considering how much we might owe and how long it will take to pay it off.

Now imagine you wore your debt for the world to see. A tallied list of your obligations floating above your head. It reads “Mortgage: $241,815, Car loan: $23,479, Credit card $6,365.” What an awful thought. I don’t know about you, but I would feel exposed and judged. Ironically enough, according to the motley fool these figures are average. They represent the average debt load for the American family and yet the idea of showing it for the world to see would leave most of us feeling ashamed.

Debt is (a perspective)

Take another moment and think about those numbers again. What do they represent? Do they represent a happy home for you and your family? Do they represent a dependable car for you to enjoy on the way to work? Maybe the credit cards represent some foolish purchases, but perhaps they represent the glove your daughter needed for softball or the flight home to attend the funeral for an uncle you loved. The fact is these numbers likely represent a mix of things you own or have experienced in life. Were there better ways to invest, save, and buy these things? Probably. However, let that go for the time being. Now isn’t the time to regret how you paid for something, but simply to think differently about how it fits into your life. After all, no matter how good a decision it was to enter into your debt, at one point it was your decision to do so.

Debt is (an agreement)

Hopefully you are able to shift your perspective on at least some parts of your debt. I don’t mean to imply you should overly embrace your debt or reframe it in a way that might encourage you to take on even more needless debt. Instead, I want you to look at your debt with a little less panic and a little more practicality. One way to step back and see more clearly is to think about debt as an agreement.

As I mentioned above, no matter how much debt you have accumulated, all of it represents decisions you have made. Regardless of the good or bad reasons why you felt the need to take on the debt, at some point it was you who made the decision to borrow the money. A car, a student loan, a home, groceries, dining out, or even taxes due that you didn’t plan for. There are likely many reasons you ended up making the choice, but again it was your choice at the time.

Now consider this; you weren’t the only one making the decision. On the other side of the debt is another party; another person or company willingly entering into the agreement with you. Like you they have factors to consider and weigh them against their needs. It isn’t you vs them or them above you, it is simply two parties entering into an agreement. The agreement is: something of value today in exchange for something of value tomorrow. Whether it is a fair exchange or not is for the parties to decide. Once the agreement is in place, that’s it. The terms are set and both parties are expected to follow through with the agreement they committed to.

Debt is (fulfilling your agreement)

After the agreement of borrowing money is complete, there is often an interesting shift in perspective.

Let’s consider a car loan to explore this change. If you have a car loan (or have ever taken out a car loan), think back to when you entered into the agreement. After hours of tedious haggling, you are presented with paperwork outlining the terms you verbally agreed to and are about to legally agree to. How did that feel? Despite the annoying experience of finally agreeing to a price and terms, you likely felt relieved the process was nearly over and probably excited to drive off in your next vehicle.

But what about a month later? A year later? Three years? Inevitably the new emotional luster of the car is gone and it is simply the car you use to get around. You might still enjoy the car, but certainly the experience isn’t quite the same. Driving off the car lot on day one certainly feels a lot different than pulling in and out of school/work on a daily basis. Ironically, one thing does remain the same; your payment. Each month it arrives with the same amount due as the first month. Your excitement dwindles and your payment endures. It doesn’t seem fair. Suddenly the agreement doesn’t seem as lucrative as it did years ago.

All loans work something like this. A trade of some valuable today (present value) for something valuable in the future (future value). At some point, however, that future value owed turns into present value due. It becomes real and a burden on you today. Also, the present value received becomes a past (or dwindling) value spent. It just doesn’t feel the same.

Debt is (a feeling)

This perceived change in value is part of our struggle with debt. Of course there is the very real financial impacts of our decisions, but those impacts are easily quantified with a calculator and spreadsheet. Instead, I’m talking about how the debt feels. After you have made payment after payment for something you enjoy less and less (or enjoyed long ago), you probably feel much different about the decision you made. Pair that feeling with the social stigma of debt and the feeling can be burdensome. Borrowers can be constantly aware of their obligations and worried about their ability to pay and/or how to get out of it earlier.

This is why many people subscribe to the idea of “paying down your debt” or achieving “debt free” lives. Those ideas are responses to the justifiably negative feelings about debt and the social stigma explored above. However, while justified, these benevolent goals can actually cause even more stress on the borrower. Even if the borrower is financially stable and can easily meet their debt obligations, the idea of being debt free can create a stressful urge to pay off their debts sooner than agreed.

Debt is (a tool)

Take a moment and allow yourself to ignore the negative feelings about your debt. Whether you are truly financially burdened by your debt or you are able to make your payments but still feel the constant nag to pay it off, consider this:

There is no one at the bank lying awake at night thinking about your debt.

Remember the other party? The other person or company you agreed to enter into the agreement with? Here’s the thing; they aren’t worried about your debt. They don’t think about it, they don’t look at it, and they certainly don’t stress about it. Once a month they print an invoice and send it to you. If you pay, they take the money. If you don’t, they will remind you, add the payment due to the next month and happily add a late charge for your trouble. They don’t think about you, talk about you, or even regard you much at all.

So why do we worry so much about our obligations? Why do we worry about social stigmas/norms or what others might think? When it comes to how we feel about our debt, it should be limited to three basic concerns:

1) Can I make my monthly payment this month?

2) Can I make my future payments and how will they affect my future goals?

3) What are the terms? If the interest rate is too high should I choose to pay it down sooner or is my money better used elsewhere. (see my last article for a more in depth discussion about this)

That’s it. Those are the terms you should consider. Don’t worry about what others might think. Don’t worry about the social stigma. And by all means don’t worry about the other party. They certainly aren’t thinking about you. Debt is a tool used by people, businesses, and governments every day. Use it wisely, abide by the terms you agreed, and you can turn it into a useful tool to achieve your goals.

Debt is (everywhere)

Let’s consider one more example to illustrate my point:

Visualize the next time you visit a restaurant. You sit, look at the menu, and decide what you would like to eat. The waiter approaches, takes your order, and you enjoy a coffee or drink while you wait for your food. The food arrives and you (hopefully) enjoy your meal. Now consider this; you’re in debt. You owe the restaurant money. It was a verbal agreement, but an agreement all the same. You basically said “I will give you money in the (near) future in exchange for a meal right now.” The restaurant agreed and prepared your meal in exchange for your future payment.

After you place your order and “enter into the agreement” are you suddenly filled with dread? Do you worry what others think of you? After you finish your meal do you imagine the employees in the kitchen talking about you and how you “owe them money”? Of course not. It is a ridiculous thought.

Now imagine this, when the time comes to pay, you are so burdened with the feelings of debt that you decide to pay the restaurant more than you agreed to. The extra money paid allows you to escape the feelings caused by the debt. You leave feeling relieved of the debt you incurred and the stress you caused yourself over it.

Of course this scenario is absurd and meant to drive home a point. If the debt you agreed to is reasonable, provided you with something of value you needed or enjoyed, and you are able to make the payments, then carry on with your life and make the payments as agreed. You don’t owe the bank or company any more than the terms you agreed. They are happy (or indifferent) to receive the payment each month and have no feelings about it whatsoever. Neither should you.