We know the government – particularly the U.S. government – likes to rack up a lot of debt.  It has the privilege of relying on the Federal Reserve to create money out of thin air to help purchase the debt.

The politicians also have the privilege of not taking responsibility for the debt.  The worst that will happen to them is that they are kicked out of office.  They don’t have to pay back any government debt, even though they spent the money.  If they ever do pay it back, it will be from taxpayer money.

While politicians can accumulate debt and leave it to the next person to figure out, you as an individual cannot do this, unless you are single and planning to die in a short timeframe.

I don’t agree with everything that Dave Ramsey says, but I do agree that you should stay out of debt for the most part.  I also generally agree with Suze Orman on this point.

I think it is acceptable to have mortgage debt, assuming it is done wisely.  If it is for a house you can afford, and the monthly payments are manageable, then buying a house with debt is ok.  It still may not be the right decision for you, but it is one of the few acceptable forms of debt that I see.

Car payments are tricky.  Some people say you should never buy a car with debt because it is a depreciating asset.  Still, I don’t completely believe this because it is something of a necessity for most people.  I don’t think debt is so much the issue with buying a car.  I think the big problem is that too many people buy more than they should.  They pay too much for extra luxuries.  You can buy a brand new car that is decent for under $20,000.

Student loans are also tricky.  I am generally against them.  Again, I think the biggest problem is people (not always kids) going to an expensive school that they can’t afford.  You hear horror stories about some young adult waiting tables who has $100,000 in student loan debt.  If you have to take on student debt, it should be for a particular goal in mind.  It should be for something that will likely increase your earning potential.  You also don’t need to spend so much money.  You can often find in-state schools that are cheaper and you can even take exams that will give you some college credits.

After that, I strongly advocate staying away from debt unless it is an emergency or a once-in-a-lifetime opportunity.

I have heard stories of entrepreneurs who put $5,000 on their credit card to start a business because they didn’t have any money.  The business ended up becoming worth millions.  You could say this was a good use of debt.

The problem here is that you don’t hear the many more stories about people who went into debt to start a business only to see the business fail.  I am all for starting a business.  But you should do it with no debt or very minimal debt in most cases.

Credit card debt is the worst, other than perhaps the big horror stories of student loan debt.  Paying interest every month to your credit card company is just throwing money away.  You should stay away from doing this in almost any way possible.  You should try to pay off your credit card bill in full every month.

When you get into significant debt, it really puts you in a rut.  It is hard to get out of it.  It is eating up your cash flow that you could be using to actually save money.

Some people don’t worry about debt.  They act like politicians, saying that they will deal with it another day in the future.  But their day of reckoning will come and it won’t be pretty.

There are some who think you should just enjoy life today because you could be dead tomorrow.  I agree that you should try to enjoy life today, but it doesn’t mean being reckless and irresponsible.  I find that people who are not in debt are typically happier anyway.  Taking a short-term outlook on life is a lower class attitude.

Unfortunately, there are even some people who think it makes financial sense to go into debt (outside of real estate).  This even includes a few libertarians who think they will depend on inflation to eat away their debts.

But the problem is that you are still paying interest.  If you are paying out $300 per month in interest payments and the purchasing power of the dollar is cut in half, you will still be paying $300 per month in interest.  Even in inflation-adjusted terms, you will still be paying out $150 per month.  So unless you went into debt to buy an income-producing asset, how are you going to get ahead with this game?

It is also important to remember that inflation in wages tends to lag behind everything else.  And your debt payments won’t wait for the inflation numbers to kick in that you want.

In addition, our economy today is one of booms and busts.  We have inflationary periods and we have corrections.  It is not just straight inflation (monetary or price) all the time.  Our booms and busts may be getting more severe, but that is still our reality.

In conclusion, I advocate that everyone stay out of debt if at all possible, with a few possible exceptions.  Nobody ever became rich by paying interest to someone else.