“I’m In Debt!”

“Why shouldn’t I borrow to buy something that depreciates?”

When you get a loan, you borrow ‘x’ amount of dollars. You must then pay back ‘y’ dollars in interest, as well. So, you’ll be paying back more money to the lender than you originally borrowed.

Now you get a loan and buy a nice new couch. As you use it, it gets worn, discolored, etc…. Now, ten years later, your couch is no longer as valuable as it was ten years ago—it depreciated. So you’re paying off a loan, with interest, and your item has depreciated in value and you can no longer sell it to get some money back.

On the other hand, if you buy something like a house on a loan, it is worth it. Houses typically don’t depreciate in value, depending on the economy and market. You could buy a house (with a loan) for $200,000, fix it up and make it worth more than before, and then re-sell it for a profit. Now, you have made money on your “investment” and your loan was not a waste. You made a profit, using the loan, instead of having to pay more.

Typically, borrowing to buy an item that can depreciate in value is not a good idea. Sometimes, though, you may not have a choice. Sometimes, that item is so important to you that you don’t care about having to pay off the loan. Spending and managing your finances is all about choices.