Is It Stupid to Borrow Money?

Kraig | May 13, 2013 | 16 Comments · Learning New Things, Getting Ahead

As I looked through my site stats tonight, I noticed a keyword phrase a visitor used today to get to my site, which was "Is it stupid to borrow money?". I figured this phrase deserved a post of its own. It seems that so many people reach my site with similar questions. Young adults these days are searching for answers. They don't know how to get ahead. They don't know if buying "stuff" like their peers are pressuring them to do is right for them. Will spending all their money, and more by borrowing money, really make their lives better?

Should I Borrow Money?

For those looking for my answer to the question, "should I borrow money?", the answer is no. My advice is that you do NOT borrow money, ever again. Obviously, there are people out there that will disagree with me that will likely leave their opinion in the comment section of this post, but that's okay. My post on Reasons to Not Buy a House Even If You Can Afford It, will then stop being my most publicly mocked post thus far.

So, why not? What's wrong with borrowing money? Well, let's take a look at it from both sides:

Reasons to Borrow Money

Here are some reasons for borrowing money and my response, knocking each one down:

It helps you build credit - Yes, borrowing money helps you be able to borrow more money. But if borrowing money is a bad idea in the first place, then why would you want to do more of it? It doesn't make sense to me. The credit score is an I love debt score. That's all it is. Sure, employers and insurance companies may check your credit score. Sometimes, that may cause them to deny you or charge you more. Perhaps you should take your services and business elsewhere. Look, I'm not saying go and trash your credit by missing payments and stiffing your creditors. I'm just saying, isn't your financial health more important than your ability to go borrow money, especially when borrowing money hurts you in the first place?
Interest rates are low - Yes, interest rates are at an all time low. That just means that now is a better time than usual for borrowing money. But again, if borrowing money is a bad idea to start with, then making it less bad doesn't change the fact that it's bad. Interest is something you pay for the privilege of borrowing money. Why pay interest when you don't have to? Why not just save up and pay cash for whatever you are buying? The rich earn interest, not pay it. Do you want to be rich, or poor (the new middle class).
You have to borrow money to buy a house - First of all, when did buying a house become something you have to do? Oh, you're brainwashed into believing that buying a house is a good investment? Try Googling around on the average appreciation of personal residences and you'll find that they just barely beat inflation over the long run. A rental house is an investment. A personal residence is an expense. It's a roof over your head. It's a liability because it requires work, maintenance and heating/air conditioning. Now that we know that buying a house is an expense just like rent is, we don't have to get caught up in the hype. Saving for a house in cash is doable. People do it all the time. Thinking you can't save for a house is not productive thinking. Yes, you can, but you likely will have to rent for a few more years. I bet it will be worth it too.
I like to keep my savings account padded - Okay, just live below your means for a while and watch your bank account outgrow your ability to spend it. Borrowing money just to keep a pile of cash in the bank doesn't make sense. It just means that you don't have as much savings as you should and you shouldn't be buying whatever you're borrowing money for.
I won't be able to maintain my expensive lifestyle without borrowing money - You're right, and that's a good thing for you, long term. If you're living above your means and spending more than you make through borrowing money and going into debt, do your future self a favor and stop. Can't you hear your future self sweating bullets? He/she is begging you to stop doing this to your future. Once you cut your lifestyle and your spending, you'll learn to stop noticing the difference at all. You'll be just as happy living cheap as you are living high on the hog. Trust me, I've been through it personally.
To go to college - This is doable without borrowing. I'll likely get hate mail for this point alone, but please hear me out. There are cheap colleges out there if you don't have the money or parents to help. Did you think about community colleges? No? Why not? No, they are not beneath you. They are college none the less and you'll be more likely to be able to pay cash for it if you choose this route. So, unless you've considered a community college, don't tell me that you need to borrow money for college. Another alternative is to not go to college. It's not like it guarantees you a high paying job or anything. There are a ton of college grads in rough shape these days, with a ton of debt too yet because they NEEDED to go to college and to borrow money for it.

Reasons to NOT Borrow Money

Here's where we get smart and start changing our mindset and future in gigantic ways. Here's why you don't want borrow money, ever again:

Being in debt is stressful and it hurts you - Do some searching online and you'll find hundreds, probably more like thousands, possibly tens of thousands of blogs that focus on getting out of debt. How many will you find on getting into debt? I'd guess very few. The common thread here is that being in debt sucks the life out of you. Why is that? Well, for starters, because, as it says in Proverbs 22:7, "The rich rule over the poor, and the borrower is slave to the lender." Ever owed your friend money? It felt kind of weird, right? Ever loaned your friend money, in which before paying you back he spent money stupidly? As the lender in that situation, you feel some power over your friend since he/she owed you money. He or she felt it too. Being in debt is a crappy position to be in. You lose your rights, your freedom, your self worth. Being in debt hurts you.
You don't need the stuff you're buying with borrowed money - What do people usually use debt for? Well, there are new cars, snowmobiles, big screen televisions, stereo systems, private colleges, houses and clothes. How many of those do you REALLY need? Likely, none. Sure you need a place to live, but do you need a 2,000 square foot house with 4 bedrooms and 3 bathrooms? I doubt it. Renting would do just fine. Do you need a brand new car? I doubt it. There are cars that run just fine that can carry you from point A to point B on Craigslist for $1,500. Clothes? You likely have a closet full of them and you're borrowing to buy more? Not needed, obviously. You just don't need this stuff, so why are you borrowing money for it?
You can always find cheaper or free alternatives that you can afford - You can find a way to live without borrowing. It's doable. Sure, I have an income and money saved so I'm far from being broke and homeless, but I believe that everyone can get by without borrowing. You just have to let go of your expensive taste. You have to hate debt enough that you'll do anything and everything to stay out of it. If need be, move in temporarily with relatives or friends while you get ahead. You can do it without debt. You just need to open your mind to it.
You're on a path to a better life, not a worse one - The final and most important reason not to borrow money is because you're on a mission to build a better life for yourself. We all are. You want to be happier tomorrow than you are today. You dream of a better year next year than you're having this year. It's part of our nature to always believe in future happiness and to have hope for the future. If you borrow, you're doing the opposite. You're setting yourself up to have a worse future than your present. Knowing that you are doing damage to the future you, how can you remain hopeful? Doesn't it just make you sick to your stomach thinking that next year you'll be more stressed out than you are now? Yuck, I'm not doing that to myself. From this point forward, I will make my future better than my present always. I always want to have hope and strongly believe that my hope is realistic.

All in all, I won't say whether or not borrowing money is stupid, however I don't believe in it and I would strongly encourage you to never do it again. If you disagree and want to borrow money, go ahead. It's your life. But I'm living mine debt free, which means my future is going to be better than ever.

#Positives and negatives of borrowing money #Is it smart to borrow money?#Is it a good idea to borrow money?

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16 Comments

krantcents says:
May 13, 2013 at 10:30 AM
I think everyone should approach borrowing similar to a good banker would evaluate you. What is the purpose of the loan? Can the borrower repay the loan? Can the borrower handle the payments? How is the credit of the borrower? Does the borrower have a history of acting responsibly with money and debt. Does the borrower have stable employment? If you are taking on a mortgage, does it make sense? I would add, is the purpose of the loan to buy an asset that will appreciate. If you objectively view a loan like a third party, you will start evaluate your decision more objectively.
- Kraig @ Young Cheap Living says:
  May 13, 2013 at 10:37 AM
  KC, Yes, I agree. However, what you didn't ask is, "Is borrowing money a good idea in the first place?" Like I mentioned in this article, I don't believe it is. It puts you under stress and traps your options and income in the future. Just my two cents.
Kyle @ Debt Free Diaries says:
May 13, 2013 at 3:01 PM
I also believe borrowing money is not good. The only reason I'd take out a loan is if I were going to use the money to invest in something, like a rental property, but I wouldn't borrow money to pay for my personal home. It's all about looking at assest and liabilities. An asset puts money in your pocket, a liability takes money out. I don't believe most purchases made with a loan are technically assets since you're just hoping to make more money after selling/graduating.
CashRebel says:
May 13, 2013 at 5:54 PM
Kraig, I tend to fall closer on the borrowing spectrum than most. Ill probably borrow money for a mortgage someday, as long as the fdownpayment is a small chunk if my asset allocation. But I can absolutely see never wanting to even get a mortgage. Here's my question though, what about borrowing money to start a business. If im able to build my own business that returns 10% a year, why not borrow the seed capital at 4%? I don't think that all leverage is bad.
- Kraig @ Young Cheap Living says:
  May 14, 2013 at 9:22 AM
  CR, Like I mentioned below to Vanessa, I'm not for the idea of borrowing to start a business. Knowing your strategy in finance, I'd be curious to know why you want to do that. Could you explain a bit more? I'd love to hear about your ideas.
Vanessa@cashcowcouple.com says:
May 14, 2013 at 8:23 AM
Like CashRebel, I'm also curious about what your stance is on borrowing money for a business. Sometimes it takes money to make money, right?
- Kraig @ Young Cheap Living says:
  May 14, 2013 at 9:12 AM
  My stance is to absolutely not borrow money for a business. Starting a business is risky and borrowing money to do it is like betting the farm on something that will likely fail, at least at first. My strategy is to start a business with cash and to start small by building something from the ground up. I'm doing just that right now. I still have my job while I'm building out my blog and traffic. Next, I hope to create and release products for sale. I plan to do it all inside of my monthly budget, which is taking up a very small percentage of my income. I use the rest to invest. Again, I don't think it's a good idea to bet the farm on a business. I'm not doing it. I wouldn't even spend all my money to do it, let alone borrow money I didn't have. My question to Ross is, if you have a pile of money in the bank, why would you borrow to start a business?
jim says:
May 14, 2013 at 10:58 PM
Great article. Good for you for having learned this at such an early age!
The Phroogal Jason says:
May 16, 2013 at 6:25 PM
I've worked in banking for close to 10 years and traveled around the US and met thousands of people. Many in both sides of the fence but many others sitting on the fence trying to answer this very question. For the most part borrowing isn't a necessity and I agree if you do not need to borrow then do not take out a loan in the first place. Evaluate your situation first and the actual need for the item you are going to take a loan out for. However, our system in the US works against you if you do not have a high credit score. Not only will it prevent you from getting a loan you may want but will prevent you from getting favorable rates on things like auto insurance, employment opportunities, down payments on housing, etc. It seems easier to say do not do business with them but the reality is that people will need to do more research to find companies that don't use scores to determine eligibility. But, alas, I agree - do not borrow for the sake of borrowing or for the sake of attaining the perfect credit score.
BTTM says:
June 2, 2013 at 6:23 PM
If you needed to dig a hole would you use your hands or would you use a shovel? Like the shovel, debt is a financial TOOL. When used properly it can help you to achieve financial goals more quickly and easily. Its called leverage. I strongly disagree with the statement "The rich earn interest, not pay it." In fact, rich people and rich companies borrow money all of the time (and pay interest). Its called the bond market ... Do people borrow money in many circumstances when then should not? YES. Does that mean that it is "stupid" to borrow money? NO I think it is stupid to dismiss a financial tool as stupid because some people have used it improperly. If you really want to live off of your investments(i.e. become a professional investor), it would be smart to understand the financial tools available and know when to employ them in a responsible and appropriate manner. - BTTM
- jim says:
  June 7, 2013 at 6:01 PM
  I'm with Kraig. Short of a life-threatening situation, hell will freeze over before I borrow a dime EVER again.
- Alex says:
  June 8, 2014 at 2:41 PM
  I know this is a very old post, but I can't help commenting. This may be good advice for the average consumer, but it is in fact very wrong. In reality, MOST rich peoe in America got rich by borrowing money to invest. There is a reason debt is called leverage. Let's take a small real estate investment as an example and lets say I buy a rental property valued at 100k with 20k down. Let's say my payment each month after the mortgage + taxes and insurance is $700 and I rent it out for $1100. That's $400 a month I'm making before expenses. Now let's say a year later my house goes up a measily 5%. Oh no, real estate is a terrible investment! But wait, that 5k increase is actually a 25% gain on the 20k I put down for the house, an that doesn't even count the money I made renting the house out over the past year. Is there some risk involved, yes (more or less depending on he persons experience/common sense). But rich people take calculated risks. Debt may be bad when used to buy "things", but the world isn't as black and white as Dave Ramsy, I mean you seem to indicate. Rich people use OPM (other peoples money) to get rich. You may not agree that it is right, but to deny it is foolish and somewhat midevil.
  - Kraig @ Young Cheap Living says:
    June 10, 2014 at 7:18 PM
    Alex, I appreciate the feedback. I understand your viewpoint and that I'm a bit unconventional. Glad to hear respectful disagreement. Thanks for stopping by and adding to the conversation. Take care,
Mark Ross @ Think Rich. Be Free. says:
June 28, 2013 at 8:52 AM
It's not stupid to borrow money. What stupid is using the money you borrow on buying liabilities and not assets.
Lee says:
July 4, 2013 at 10:49 AM
Hello Kraig! Well it has been said “Better to go to bed hungry than to wake up in debt.” I agree with all the points you have given. I love this article, it is somewhat an eye opener to everyone. One should analyse their personal finances carefully before borrowing money. I salute you for living a debt free life.
Nilofer T says:
September 29, 2015 at 12:54 AM
Hi! I was actually thinking about your title and on a whim googled just to see what ppl say about borrowing and landed on your site. I totally agree with all you have said. I have never borrowed and never plan to. My mom has taught me two things in lyf that I adhere to lyk a lyf lyn... 1. Always spend only what you have in your pocket. 2. Always pay your bills on time so that at the end of the day when you go to sleep, you sleep in peace. No lenders knocking on doors asking for their money back. With her as inspiration, I have never been in want of anything ever since I was a kid. I had my own TV, X-box, DVD, laptop, tablet, smartphones etc etc... all bought with my own saved money. I scrunched, saved and did jobs whenever I could and the joy and freedom I would get when I would go and buy the stuff was amazing. Most ppl don't realize the freedom you get when you buy something with cash in hand. Now that I am all grown-up, I have bought a house for my mom and planning on buying soon another one for me. Also want to start a business, but all this will be done with money I have in my pocket, not borrowed or with future or dream money as I call it. Thanx 4 the article. I am glad there are others out there that realize borrowing is a bottomless pit kinda act. It is far better to spend what you have on hand and save and scrounge.