Debt can be a great financial tool when used wisely. It can also cause severe personal and financial problems when used poorly. I think of debt like I do drinking a nice cold beer. One or two over a few hours feels really good. More than than that and I start to lose control. Bad things can happen when I lose control.
Here are the guidelines I have tried to follow during my life.
Too much debt scares me so I was never in a hurry to use debt. It is important that each person understands their own comfort level with debt. Each person’s tolerance is different.
Only use debt for large one-time items, such has a home purchase, car purchase, or unplanned major expenditures such as roof replacement, remodeling your home, etc.
Put as much down as you can afford. If you cannot put down 20% you probably should not be using debt.
Only use debt for needs. Do not use debt for wants or desires.
Never use debt to cover ongoing, recurring expenses. If you have to do this, it means you are spending more than you are earning and heading for serious trouble. In my opinion annual vacations, golf trips, etc are ongoing, recurring expenses.
Be very leary of college loans. Using loans to fund an education in a field that is notoriously low paying does not make good business sense. It has been proven that students are better off spreading their education over a longer period and working part- time to help offset expense, than they are incurring four years of education debt that will be very difficult to pay off when working in a field that does not provide much discretionary income.
As I have gotten older I have more flexibility as it relates to debt since I have funds invested in various financial markets. If the market is earning at a percentage rate greater than the interest rate I will be charged, I will incur the debt rather than using my invested funds.
Debt used wisely can be a great financial tool.