This season, we’ve looked at debt from a different perspective. So often, we believe that debt = bad. Even worse, our society often views it as a moral failing. The reality is that debt is sometimes necessary—and it can even be a tool to help you better your finances. Listen to our season wrap up with more perspectives on why debt may be a necessity.

Some of the things we bring up include:

* How the rich use debt to borrow and spend using stocks and other assets as collateral and to avoid selling anything and reducing taxable events

* Our propensity to consider what rich people as superior while doing the same thing as a poor is considered inferior or “trashy”

* How the financial order of operations might work for some people, but can be overly prescriptive and doesn’t always work if you run into a problem

* Much of the “regular” personal finance advice works best if nothing goes wrong for 20 years

* Concerns that prescriptive finance a la Dave Ramsey is making its way into some schools

* There’s a lot of “financial porn” out there that glorifies strategies that are inaccessible to most people, even though those they feature are outliers

Financial strategies that include debt

We featured a few people who shared their stories of how debt is necessary in some cases, including some of their own stories of using debt as a financial tool:

* Brynne Conroy

* Tiffany Grant

* Dustin Heiner

* Deacon Hayes

And don’t forget to check out our recommended resource from Dana Miranda of Healthy Rich, Dealing with debt without shame.

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* Sarah Li-Cain

* Miranda Marquit

We all have social debts that we’re supposed to pay. Whether it’s spending money to go to your BFF’s bachelorette or buying Girl Scout cookies from your co-worker's daughter, we’re all expected to conform to small social niceties to get along in society. Sign that sympathy card for the PTA president and chip in for flowers.

Sometimes, social debt is less about money and more about time. We’re supposed to reciprocate favors and make time for people in our lives. If you committed to it, you could attend a family event every single week of the year. That might not cost a lot of money, but you might get burned out fast.

Our information on social debt

* This 30-year-old Washington Post article on social debt explores the costs that come with discharging these debts.

* Another view of social debt and its emotional and mental impact comes from a LinkedIn newsletter.

* The Charlotte Observer offers information on the cost of being a bridesmaid.

* WKYC has a story on Girl Scout cookies and costs.

* Ever Loved offers some information on funeral flowers.

* There are a couple of articles on workplace happy hours from Slate, Business Insider, and SHRM.

* Learn more about mutual aid from the University of Georgia and Nonprofit Quarterly. Our friend Vee Weir does regular mutual aid drives.

* How we sometimes use social debts as a way to keep score in relationships. The National Library of Medicine has some research on how this works and its impacts.

* Check out the Instagram account Sarah referenced, Overheard New York.

Check out our financial resources and guest insights

* Wandering Aimfully has a great post on figuring out your non-negotiables.

* Clever Girl Finance offers amazing advice on setting healthy financial boundaries.

* Lingjie, who shared information about social debt, is part of Worst Asian Podcast.

* Check out Rob Phelan at The Simple Startup.

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* Sarah Li-Cain

* Miranda Marquit

This episode is about how sometimes you really need debt to move forward in your life. And even if you don’t need it, sometimes it can be a big help and well worth it to use debt as a tool to level up.

Where we got examples of costs:

* The average cost to move across the country when you have two to three bedrooms is between $3,000 and $9,500.

* On average, divorce lawyers cost $270 per hour, with a total average cost of $11,300. 

* The average cost of immigrating to the U.S. is $1,200 to $8,000, depending on a variety of factors.

* The average cost of in-state tuition at a four-year public college is $9,678 a year.

* Depending on the type of business, you could spend anywhere from almost nothing to thousands of dollars. According to a Shopify survey, it’s common for business owners to spend about $40,000 in their first year.

* The referenced “Boots” theory of socio-economic unfairness from Men at Arms by Terry Pratchett.

Resources for getting help

* National Domestic Violence Hotline

* National Resource Center on Domestic Violence

* Local food banks from Feeding America

* National Immigrant Justice Center

* SBA’s 7(a) loan program

* Unemployment benefits

* DOJ list of credit counseling agencies

* CFPB information on credit counseling

Thanks to our guests who shared their stories

* Adrienne Taylor from Tailored Wealth Saver

* Ashley Patrick from Budgets Made Easy

* Eric Brotman from BFG Financial Advisors

We recommend checking out the Borrowing Basics game and resource page from the FDIC.

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* Sarah Li-Cain

* Miranda Marquit

In the last 20 years, tuition costs have soared in the U.S. In-state tuition at public universities has increased about 158 percent during that time. Long gone are the days that our boomer parents reminisce about, you know, when you could work for a summer and save up enough money to cover tuition for a full year of school.

Many of us, especially Gen Xers like me and millennials were told to go to school and get a good job. Even with student loans, our parents told us it was worth it. Surely we'd get good jobs and be able to pay off the student loans with ease. So let's take a look at student loans. Let's talk about the realities of where we are right now and how it's okay. If you don't plan to pay off your student loans early or even at all.

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This episode dives into personal loans and how they can be helpful for managing cash flow and how sometimes debt is a lifeline for some folks who need a leg up.

We cited information about debt, specifically student loans. Here’s where we got it:

* Lending Tree personal loan statistics

* Credit card trends before and after the pandemic (Government Accountability Office)

* Bankrate personal loan rates

* Bankrate credit card rates

* Reuters reports credit card debt topping $1 trillion

* Clever survey results: people using credit cards for necessities

* New York Fed household debt

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* Sarah Li-Cain

* Miranda Marquit

One of the biggest rules in personal finance is to buy a used car with cash. You hear stories about how your car loses value as soon as you drive it off the lot. That used car has already seen its biggest depreciation and borrowing just makes it all worse.

But what if it makes sense to buy a new car with debt, as long as you acknowledge what you’re doing and you have other plans for your money?

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Miranda’s strategy for buying a car

We talk about how Miranda manages her vehicle purchases:

* Buy a car with low-cost financing (60-month loan)

* In 2001, 1.9% APR

* In 2021, 2.49% APR

* Keep the money she would have used to buy a depreciating asset in the stock market, where it earns more than what she’s paying on the debt

* After 8 to 10 years, use the car as a trade-in for the “down payment” and finance the next car at a low rate

It’s important to note that this approach works best if you can get a good rate. However, in some cases, you need the car for work and might need to finance a used car at a higher rate just to get access to the transportation you need.

Sarah has also used a loan to get a car. It was more convenient and easier than getting a cashier’s check from the bank. Her approach was to pay off the loan within a few months. But she maintained flexibility to get the car and keep the loan if the money ended up being needed for something else.

Lifestyle factors

We talk about lifestyle factors that might influence how you buy your cars.

* If you like getting cars more frequently, leasing might not be a bad option.

* If you expect to drive the car for a short period of time but want to sell it, buying it with cash can make sense.

* Think about how you use your cars: work, travel, family, etc., and make a plan that fits with your lifestyle.

* Carefully evaluate whether financing a car works (or is required) in your situation.

Financial resources

We encourage people to check out the following resources before getting a vehicle:

* CFPB page on auto loans: https://www.consumerfinance.gov/consumer-tools/auto-loans/

* CFPB page on buying vs. leasing: https://www.consumerfinance.gov/ask-cfpb/what-should-i-know-about-leasing-versus-buying-a-car-en-815/

Big thank you to Ashley Barnett for sharing her story! Check out her LinkedIn profile if you’re looking for a top-notch content director or check out her Hit Publish course for writing better content.

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* Sarah Li-Cain

* Miranda Marquit

There's a whole "order" you're supposed to be following when working toward financial freedom. In fact, some gurus -cough- Dave Ramsey -cough- will tell you that you need to pay off ALL your non-home debt before you start investing. But should you really tackle your lower-rate student loans or other debt before you let compounding returns work in your favor?

We're not so sure. Let's take a look at investing while you have debt and how to decide what to tackle first—or even if you need to choose.

There’s a lot of talk about how you should go about paying down debt and putting off investing for a minute. We look at:

* https://www.cnbc.com/2018/10/03/suze-orman-pay-off-debt-asap-and-not-because-it-costs-you-money.html

* https://www.bankrate.com/personal-finance/debt/good-debt-vs-bad-debt/

* https://www.ramseysolutions.com/debt/pay-off-debt-before-retirement

A quick and dirty look at Miranda’s situation

One of the big things we talk about in the show is the fact that Miranda just went ahead and invested instead of paying down her low-rate student loan debt. Here are some of the deets about the student loan payments:

* $53,400 (undergraduate + graduate), consolidation in 2005 for payoff in 2030

* $223.79 monthly payment

* 1.9% interest rate

Using the Student Loan Planner payoff calculator, Miranda could have saved $3,941 by making an extra payment of $100 per month and being done in a little less than eight years.

Instead, by putting that extra $100 per month in the S&P 500 via an index product and reinvesting the dividends, the result is a final value of $66,498.65, not accounting for capital gains taxes, by investing from December 2005 to December 2023. Even subtracting the $4,000 in savings in interest, that’s still coming out ahead by more than $62,000. Miranda still has some years to go before those loans are paid off, so the value is still there. (Calculator used is from DQYDJ.)

If Miranda had started in December 2013, after paying off student loans early, the value of her portfolio with only that $100 extra payment, would have been $22,360.

Miranda’s total interest cost will be $13,724 at the end of 2030. With a total overall value of nearly $53,000 after interest costs are subtracted. But only with gains through December 2023. This doesn’t account for gains through the end of December 2030. Let’s start with $53,000, assume only 7% annualized returns, and $100 a month. According to the Investor.gov calculator, the portfolio value would be close to $95,500.

As it is, Miranda will be Coast FI before the student loans are paid off, and she has invested much more than that extra $100 a month over time. Consider running the numbers on your own, taking into account interest rates and potential returns before deciding to put ALL of your extra money into debt paydown before investing.

Why you might want to invest, even with debt

Investing can help us look forward to the future. We reference the idea of “prospection” and how it can help your mental health.

* https://greatergood.berkeley.edu/article/item/how_thinking_about_the_future_makes_life_more_meaningful

* https://www.amazon.com/Tomorrowmind-Resilience-Creativity-Connection_Now-Uncertain/dp/1982159766

We also reference a study that indicates 48% of credit card users have to use them for living expenses (https://listwithclever.com/research/average-american-credit-card-debt-2023/), so investing a little bit now can give you something to look forward to while slogging through daily life. Even if you’re just putting a bit of your paycheck into a 401(k).

We reference wages, and how they aren’t keeping up with anything resembling a living wage.

* MIT’s living wage calculator: $25.02 per hour, average in the U.S.

* Statista: Average hourly wage for all U.S. workers is $11.05

* DOL: Federal minimum wage is $7.25

It’s practically impossible to prepare for the future without some type of investing, even if you have debt.

How to decide between investing vs. paying off debt more aggressively

* Consider potential annualized returns: Rule of thumb is about 9%, based on S&P 500 returns over the last 25 years (see: https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/the-strategy-and-corporate-finance-blog/markets-will-be-markets-an-analysis-of-long-term-returns-from-the-s-and-p-500)

* Look at your APR: Debt below 6% might be worth slowly paying down while you invest. Maybe start with debt above 15% APR for aggressive paydown

* Create an allocation: Maybe put 90%-95% of your available income toward debt reduction when tackling high-rate debt while still investing 5%-10%. Then, as you get rid of higher-rate debt, shift the allocation, so you’re putting more toward investing with lower-rate debt remaining.

This episode’s financial resource: https://www.britannica.com/money/start-investing-student-loan-debt

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* Sarah Li-Cain

* Miranda Marquit

Paying off debt early is considered a “guaranteed return.” But what if you can get better returns elsewhere? Could you use the “extra” you’d put toward paying down your mortgage for other financial goals, like retirement, investing, saving for college, going on vacation, or reaching some other goal?

While paying off your mortgage early is a noble goal, it’s not the only way. In this episode, we tackle some of the realities—including the reality that not everyone lives in an area where home prices appreciate dramatically over time.

For stats and resources mentioned in this episode, head to itdoesntmakecents.com

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Introducing It Doesn’t Make Cents, a podcast by Sarah Li Cain, AFC© and Miranda Marquit, MBA, launching January 16th.

Are you REALLY doing money wrong? Good news: you aren’t doomed to a lifetime of financial failure because you aren’t saving to buy a house, buy a TV with a credit card, or have student loan debt. Get away from all the “supposed-tos” and stop beating yourself up over perceived mistakes. We’re here to debunk prescriptive money rules and inject a little nuance into your financial life.

This season we’re talking about the common misconception that debt is ALWAYS bad in season one. You don’t have to pay that mortgage off early. Go ahead and finance that car. We’ll also tackle the controversial aspects of debt. How much social debt are you carrying around? Are you really immoral if you have your student loan debt forgiven?

The best way to support It Doesn't Make Cents is to share our work.