Let’s sing a slightly different tune with this post - instead of the usual debt bashing. When I say “bad” debt, I am referring to the “good debt, bad debt” terminology that’s gathering some attention in financial circles - I am not referring to it in a classic technical definition point of view as “the portion of receivables that can no longer be collected“.
To understand the significance of debt in general, it’s instructive to imagine a society in which the facility to borrow money does not exist at all. Think in terms of education, industrial development, housing “requirements”, entrepreneurial endeavors, emergencies, and other aspects of our life that involve borrowing (and lending) money in some form or other.
While you are at it, try answering these questions: Would you be willing to wait till you are 35 years of age for higher education (think in terms of advanced graduate, law, medical degrees, etc.) - at which time you could probably pay for your entire education with cash in hand? Would you be willing to wait till you are 60 before you buy a home with your savings? How would you even start setting up a promising company/small business unit (say for example, a manufacturing unit) that would probably require a couple of million dollars of initial funding?
The common crucial denominator in the above issues is time - with respect to the psychological and physical (monetary) value associated with it. There are certain things in life that need to happen at the right time - whether you have the financial resources available at that time or not. In light of this, debt should be viewed not just as financial leverage - but also as leverage against time and as such, it has an enormous value when applied correctly.
In layman terms, the correct application of debt requires understanding the concept as timely financial help borrowed in the anticipation of future earnings. Most of the times, the part that says “anticipation of future earnings” is ignored or undermined or totally miscalculated and that’s where problems start appearing. Some people probably tend forget that any borrowed stuff needs to be returned in a timely manner and then, all of a sudden, money borrowed for good purposes becomes “bad debt”.
I think it’s naive to only bring up negative connotations associated with credit card business, payday loans, and subprime mortgages when talking about debt and painting the whole concept of borrowing money with a broad “debt is slavery” brush. Debt is slavery only when we use it mindlessly.
In summary, there is no such thing as “bad” debt - there is just bad implementation, unreasonable temptation, and occasional miscalculation. Like most financial issues, debt is simply a question of affordability and feasibility - there is absolutely nothing profoundly bad about it. Just my two cents.