I have previously written about the benefits of buying a house right now, if you are in the right situation. One of the reasons I give is that you can take a fixed rate loan for 30 years and pay it back with depreciating money. Your last payment in 30 years might be the equivalent of a nice dinner (if we are lucky).
With that said, I don’t want anyone to take that as a green light to run up debt. First, the future is very uncertain and, while I am predicting that we will see some high price inflation (10% or more), this is no guarantee. It is impossible to predict exactly how the Fed will operate and how the politicians in DC will operate. It is also impossible to predict how over 300 million Americans will act.
Even if we do get somewhat significant price inflation, this does not justify running up debt, particularly if it doesn’t involve a house or a reasonable investment/ business.
Student loan debt and credit card debt are the worst. You can not clear away student loan debt with bankruptcy. Some might consider this an investment, but that is a big leap of faith right now, especially with college graduates having difficulty finding good jobs.
Credit card debt is horrible debt to have, unless you got there because of an emergency situation. Sometimes you can get low teaser rates, but the rates end up being high. If we end up with 10% price inflation and you have credit card debt with an interest rate of 18%, tell me how that is beneficial.
Cars are a little tougher. Most people need a car, particularly to get to work. Unless you live somewhere like Manhattan, then a car is probably a necessity. In this case, it is obviously important to have one, even if it means taking out a loan. However, if you have to take out a loan, it should be based on need and not want. You don’t need a $40,000 Acura to get to your job.
Debt is usually a horrible burden on people. It does not give you financial freedom. Instead, it puts you in financial handcuffs. Even if we end up getting high price inflation, it is unlikely to end up in hyperinflation. This means there will eventually be a severe correction. This will mean deleveraging. It means that anyone with a big debt burden will be in trouble.
Even as far as houses go, whether it is your primary residence or an investment property, it should be a goal to pay it off. You can take advantage of the low interest rates now, but it doesn’t mean you should always have a loan.
Stay out of as much debt as possible. You will be happier for it.