Debt is a controversial topic for many personal finance experts. There are many who believe that we should have as little debt as possible, but there are others who would say we should utilise as much debt as we wisely can.
And those debt cheerleaders aren't just the marketing departments of Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC).
Looking at certain time periods over the past two or three decades, it would have made a lot of sense to borrow as much as possible and go on a property buying spree in Sydney and Melbourne. If you've owned a property in Melbourne or Sydney for over a decade you would be in the money! Negative gearing and property accumulation has been a successful strategy for some, up to this point in time.
But I'm not in the camp of "get as much debt as possible".
Some debt is unavoidable. If you're studying it's most likely that you will need to take on some form of debt to undertake & complete education. This is worthwhile; investing in yourself will usually create the biggest return on the money and time involved.
I will also admit that now is a great time to have debt with interest rates so low, perhaps it's the best time ever to have debt. But it could be quite easy to get into too much debt.
Mortgages take decades to pay back. There's no guarantee that interest rates will always be this low – they could go up again.
For non-mortgage debt I would say it only makes sense to take on debt where you're getting a financial return that's comfortably better than the interest rate. Good use of education debt is smart to open up high-paying work. Investing in high-costing assets for a business is usually good idea to improve output. However, margin loans and investment property loans are questionable ideas at the moment. Margin loans may never be a good idea.
But, consumer debt is the financial embodiment of impatience. Over time not only do we still have to pay back all of that debt but interest will make the purchase cost more, perhaps double or more.
Foolish takeaway
It's much better to save cash and benefit from interest earned along the way to your goal rather than paying interest on debt for many months or years, except where it will clearly be better financially for you and you aren't overextending your debt capacity.
