There is no good debt, or is there?

One of the interesting facets of sports is the issue of belief. When an athlete goes steps onto the field, it is absolutely vital for them to believe they can do what needs to be done. That they can win, that they can beat the other guy. It's this belief that allows them to do their best, even when their best may well not be good enough.

Humans are funny that way. What's best for us to believe isn't always the truth.

So should we believe in good debt?

Debt is the ultimate complication, the antithesis of minimalism. It trades instant gratification for long-term commitments, commitments we may decide later we don't want to meet, but are forced to.

For a long time, the common understanding has been that there is such a thing as "good debt." The most commonly cited are mortgages and student loans.

Mortgages are theoretically good debt because they allow you to begin building equity in a home rather than paying rent that you never get back.

Student loans are theoretically good debt because they allow you to significantly increase your earnings potential

The problem is that the circumstances in which those are beneficial are narrow, but the concepts open the door to bigger problems.

A mortgage for a small home that can be easily afforded might be a good debt. But it opens up the door to rationalization. Given the chance, people will bend their thought process toward the result they want to reach. If they want to buy a house and a mortgage is the only way to do it, they'll convince themselves that they need it and can afford it.

The idea of a mortgage as good debt is what allows people to convince themselves that it is okay to buy a much bigger house than they actually need, which can be a crippling financial mistake and lead to a lifetime of extra work and stress to pay for that extra space. "Can afford it" continues to be a tricky concept, because we tend to be optimistic by nature. It's not enough to be able to afford the mortgage payment in good times. What if you lose your job? What if you are forced to change careers? What if you are forced to take a lower-paying job in the same field? Could you afford your mortgage then, at least for as long as it might take to sell the house in a tough buyers' real-estate market (several years)? Buying only the true minimum amount of house that you actually need can free you from those concerns.

Student loans are even more nefarious. It's an oft-cited statistic that college graduates make, on average, more than $1 million more in their lifetimes than those who stop at high school.

That is a bad statistic.

It's comparing apples with a bag of mixed fruit, at best. All high-school degrees are more or less interchangeable. Having a "college degree" could mean anything from an associate's degree in English to a Ph.D. in engineering. If you take out advanced postgraduate degrees in medical, legal and engineering professions, there isn't a lot of difference in the earnings of high-school and college graduates.

College is getting more expensive each year. The cost of a four-year degree can range well into the six figures, and few students are going to get away with less than a $30,000 investment. On a 30-year student loan at 3 percent interest, the true cost is going to be 2.12 times as much as the money borrowed.

A non-productive college degree is a six-figure luxury. It's easy for a college student to insist that they just can't be happy in life if they don't major in music theory at the expensive school all their friends are going to. Ask them again in 20 years if they would have rather had a paid-off house, a few nice vacations and a retirement date a decade closer instead, and their answer might be different.

College is the most important and most complex financial decision anyone will be asked to make, and 18-year-olds are rarely equipped to make that decision.

Car loans are by far the worst. Yes, they seem to be a necessity in modern society, especially for some people's jobs. But the total cost of the loan is usually twice the original price of the car, and the car depreciates considerably and consistently. And few people ever buy the minimum amount of car they need. For a few thousand dollars, tops, anyone can find a reliable and serviceable used car. With patience and a willingness to hunt for deals, even $1,000 should be easily enough. If you can't save that up to buy a car without debt, then you can't really afford the car.

In the end, most of us are better off telling ourselves there is no good personal debt

Take a look at that chart above, courtsey NPR. For five decades Americans took on more and more household debt. We, in short, have a problem.

Yes, some drugs have medicinal purposes. Would you tell an addict we there's good morphine and bad morphine? No, you tell him to go cold turkey.

Most of us should be doing the same with debt.

What is debt?

Debt is a tool.

Let's get this out of the way now. Yes, debt is a tool. It's a vital tool for society. Businesses need it, for certain, and entrepreneurship is the backbone of our society.

Individuals can use debt wisely as well. A student from a poor background can use student loans to attend a college program that opens up the door to earnings that are many times what he would make otherwise. Taking on a reasonable mortgage can mean building equity with your monthly housing expenses rather than spending it on rent that you'll never see again.

Now that we got that out of the way ...

Debt is a dangerous tool

Debt isn't a hammer, where the worst you can do is smash your thumb pretty good. Nor is debt a kitchen appliance, where you'd probably have to put your mind to it to really hurt yourself.

Debt is a power tool. It's a raging chainsaw that can and will do you grievous damage with ordinary use, if that use is not careful and does not follow all of the carefully planned safety guideliens.

You wouldn't walk into a building store, buy a chainsaw, assume you know how to use it, and begin applying it to every problem in your everyday life. Don't do it with debt either.

Debt is indentured servitude

Debt is nothing but the promise to pay money later. And most of us only get money through work, whether it be for an employer or for ourselves. So when you borrow money, you are promising to work a certain amount for that money in the future. And it adds up fast.

The average American household has about $18,500 in debt and makes about $50,000 a year in income. Even before taxes, that debt represents a pledge to work, on average, about 775 hours of work, almost 20 weeks.

The average American household has promised to work for 20 weeks of their future in exchange for money they've already spent, in exchange for nothing new. They will add nothing to their lives or their pocketbooks for that work, they will be working for nothing.

Debt is choosing to pay more

Imagine walking into the grocery store and seeing all the price tags have changed. Eggs are now marked "$1.29 per dozen or $1.89 per dozen." You reach for the milk, and it says "$2.19 per gallon, or $3.29 per gallon." You reach the register and the cashier rings you up. "That will be $149.53, or $215.88. Which would you prefer?"

It seems nonsensical, but people buying consumer items with debt choose the more expensive option every single day. Debt is nothing more than the promise to pay more later than you would have to pay now if you had the money.

The most common way we fool ourselves is that debt usually involves payment. You don't borrow $100 and know that you have to pay $120 in six months. You borrow $100 and promise to pay $20 each month for the next six months. The more complicated the math, the easier it is to not think about the reality of how much you are truly paying.

On a web forum I read, a poster was asking for the advice of which of two cars to choose: A used car with a loan payment of $250 a month for three years, or a new car with a payment of $600 per month for six years. Ignoring the fact that the poster can't really afford either, there was a psychological reason for choosing to think about the cars in those terms. $250 vs. $300 is just $50 per month. It makes them seem as if there was little difference in price. The reality is that the second car would cost $9,000 more. $9,000 seems like a lot of money, $50 does not.

Debt is not necessary, it is a choice

We do have bankruptcy laws for a reason. People who find themselves in dire straits due to, say, unexpected medical bills have a way to discharge them without having their lives and livelihoods ruined. There are no more debtors' prisons.

But otherwise, nobody needs debt. We choose debt. We choose student loans rather than working in high school and college to save up for a small state school. We choose car loans instead of doing without a car until we can afford a cheaper one.

I'm not saying the choice isn't easy. Besides peer pressure, we have an increasingly skilled and complex marketing complex in this country all designed at whipping us up into a consumer frenzy. But it's still a choice.