Debt: How Much is Too Much?

July 24, 2013 § Leave a comment

I recently came across the Money Girl podcast, which publishes a series of articles and audio podcasts addressing financial topics ranging everywhere from credit scores to retirement. Laura Adams is the guru behind the podcast microphone, and it is safe to say her “Money Girl” enterprise isn’t just for women, but rather anyone looking for a little common sense advice out there in the jumbled world of personal finance.

Train tracksHer podcast episode entitled “How Much Debt is Too Much?” had some particularly helpful ideas for my own situation. Simply put, Adams doesn’t banish debt to the stigmatized category of Bad Things One Must Always Avoid. Instead, she calls it a “powerful tool” that can be used to subsidize one’s future. The trick with debt, Adams implies, is to be smart about when and why you choose to take it on. Educational debt, for instance (particularly in the case of a specialized graduate education), can be in a separate category from credit card debt, because it ideally would give a return on your investment by increasing your earning ability over your lifetime. With credit card debt, not only are you not getting anything back for the money you (or rather, your creditor) are spending, but you’re racking up so much in interest that it can become a financial trap quite quickly.

Give this episode a listen if you want to hear Adams’ seven signs that you might be in over your head with debt. Some of her warning signs are obvious (e.g. it’s likely a bad sign if your credit cards are maxed out), but she makes up for it with her list of three good reasons to take on debt:

  1. You’re confident that you will have a return on your investment (this is key!)
  2. You are (or will be) able to make your payments on time
  3. You qualify for a competitive interest rate

If you are interested in reading the full (short) article or listening to the podcast, here is the link.

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