Weekend Linkage: Good Debt, True Costs and Psychology

by Jason Unger

Is there such a thing as good debt?

If you ask someone like Dave Ramsey, debt is always bad. The Mint Blog, on the other hand, examines the possibility of good debt, such as affordable housing, education and a car to get to work.

Bottom line: The best kind of debt is debt you can afford. This means debt that has monthly payments sufficiently low enough that you can pay it down while meeting all your other necessary living obligations (and a few fun ones, too) with cash.

Get Rich Slowly has a great post on the psychology of money, saying that it’s more about the mind than about the math. We’ve talked about the emotions of money, and why for some reason we tend to make poor decisions when it comes to our money.

One of the best ways to avoid making bad decisions? Automate, says GRS.

Automate. One of the best ways to trick your mind is to simply take it out of the equation. If you find it difficult to make smart financial choices, remove the choice. Sign up for auto-billpay. Set up an automatic monthly transfer from your checking account to your savings account. If you have access to an employer-sponsored retirement plan, take advantage of it. When you make things automatic, you cannot be sabotaged by emotion or psychology.

I like it. (Find out more now.)

Have any questions about the first-time homebuyer credit? PT Money, who we talked to about  money management this week, rounds up a ton of questions and answers them in one post.

Finally, the NY Times has an interesting piece on the true costs of items at retailers, where credit, cash and debit users are often paying different prices.

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{ 3 comments… read them below or add one }

Brad Castro October 4, 2009 at 5:02 pm

To me, bad debt is debt related to consumption and potentially good debt is related to investments. I say “potentially” because the use of debt to fund investments (real estate, personal business, etc.) is only as good as the underlying investment/business turns out to be.

PT October 5, 2009 at 12:41 am

Thanks for the mention, Jason. Hope your weekend was nice.

Jason Unger October 5, 2009 at 9:58 am

@ Brad – generally, I agree. Going into debt to invest in stocks is a dumb idea, but going into debt to fund education makes sense. Of course, getting out of that debt as soon as possible is the best thing you can do.

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