The Social Marginal

It’s an age-old adage, but one that is often forgotten in these days of instant credit and zero percent financing.  People on low salaries constantly running up bills that they can not afford to pay off and end up needing to be bailed out in one way or another in the end.  Before you read this brief excerpt, realize that I am no Ramseyite.  I don’t believe that one must strive to live without debt (though it is, of course, nice), what I do believe is that people should strive to live only with responsible debt.

Responsible debt is a hard thing to define, and something that, of course, differs from person to person, if there is a set formula for figuring it out then please feel free to comment and share it.  However, I loosely classify it as being able to pay off all your debt sans mortgage within a one-year period under normal circumstances and without the need to drain your emergency cash reserves, retirement, or standard savings.  Of course this means that you should always take advantage of products such as zero percent financing deals and the like that ultimately benefit you, as they are very often purely responsible debt if handled correctly.  Say you purchase a $4,000 television and they offer 12 months interest free.  Well, you can buy the television on their credit and then bank the $4,000 in a C.D. or whatever and then cash out the C.D., pay for the television and pocket the interest earned on the “holding” account.  That extra 3.4% or so that you can earn on that money over the year (or hopefully multiple years) adds up, just as long as you have a plan to pay off that debt before the promotion expires and you’re suddenly hit with all the retroactive financing charges.  Play the system, but play it responsibly. Read the fine print, ask questions, be sure you understand the terms of the deferred interest “0%” interest plan that is being talked-up to you. You must keep in mind that it is the goal of the seller to move his product and make as much money doing it as is possible.

Responsible debt requires responsible financial planning, and if you don’t have it, you can’t afford any debt.

Tags: credit, debt, financing, money management

This entry was posted on Sunday, March 2nd, 2008 at 6:41 pm and is filed under Credit / Debt, Money Matters. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.