The Money Edit is for women who are passionate about personal finance and financial independence.

This is a place to change your mind about spending, saving and living your best life.

Using debt to your advantage when the numbers work

Using debt to your advantage when the numbers work

Like I said waaaayyy back in my Jen Sincero post, I'm not about absolute frugality and grinding until all the pennies are saved.

What I am about is aligning your earning, spending and saving with your values so that you can create the life you want.


In some situations, debt is OK. For example, a mortgage. As long as you have a sensible down payment, a stable source of income and an emergency fund (a.k.a. savings that you can use if something drastically changes your life) it makes sense to use real estate as an asset, rather than pay for someone else's mortgage. My values tell me that I need to research the market and figure out what is a good deal, which areas are most likely to increase and what features about the property can allow me to gain more income and add value when I sell. More on real estate in the future :)

Lines of Credit

Another example where leveraging debt is ok is in Julie's situation. I'll explain more in Julie's September update but here it is in a nutshell: Juile has $4000 on a credit card, and she's paying 20.99% interest annually. We estimate she'll be able to pay off her debt in full by December so in order to avoid the high interest, Julie opened a line of credit for 7.9%. She is 100% committed to paying off her LOC and paying off her credit card every month, forever.

In this situation, it makes more sense to pay less interest while paying off the debt. This would not work, however, if Julie wasn't committed to using her credit card properly. Why? Because if she were to overspend on her credit card again, and move the balance to her LOC, she would be accumulating even more debt. Your LOC is not free money, it is a sensible way to manage the money you owe in the short term.

Car loans

An example that I'm torn about is a 0% car loan. I have a deep seeded problem with a) accumulating monthly payments and b) making deals with car financiers. First, let's talk about monthly commitments. One of the ways I manage our family's monthly cash flow is by minimizing any monthly bill payments. We only pay what we have to pay monthly: mortgage, hydro, natural gas & internet. Everything else is paid by lump sum when the bill is due including insurance, taxes, cars, etc. I like to get the credit card points and I sleep easy knowing that my monthly bills are minimal.

Adding a car payment, $350 a month to my monthly expenses for the next 85 months seems like a longtime to be paying for the car. It also means once you sell it after 7 years, it won't be worth anywhere near the money you put into it. Buying a new car is a glorious feeling but is not a smart investment. Before making the decision to take that car loan, I would be very diligent about reading the fine print of the loan agreement, making sure the warranty lasts as long as the payment term, and that the dealership will likely still exist in 7 years.

As you can see in this last example, what we spend money on is determined by our values. I personally value paying off my mortgage and moving toward financial independence a lot more than I value cars - but that won't be true for everyone.

What are your thoughts about the post? Do you use debt to your advantage?

How to use a credit card

How to use a credit card

Freedom for $20/week

Freedom for $20/week