I have listened to the minimalists podcast since they started it. I was a reader of the blog before even before that.

Among many other wisdoms they always state the following: ‘There is no such thing as good debt.’ They include every debt, from creditcard debt to car loans, student loans and even a mortgage.

Here is my thought on it. I cannot say anything else then I agree, almost… There is hardly ever any excuse to have personal debt, creditcard debt, car loan or any in that category.

Creditcard debt/personal debt.

You cannot spend money you don’t have to buy things. Period. Don’t do creditcard debt or any other form of personal debt. Not for clothes, not for repairs, not for anything. Maybe, just maybe, for a roof over your head or food. But really, buy the cheapest most calorie dense food and move to a place you can afford. Just don’t go into debt.

Now that that’s out of the way let’s talk car loans.

Car loans

Same goes for car loans. Let’s say you have zero money and you find a job you need a car for. Can you go there by public transport until you save enough to buy a car? Can you borrow somebodies car until you can buy yours? Can you carpool until you can buy yours? It is totally okay to drive a (very) old or (very) small car. I do too, my first car was 950 euros when I bought it and I drove it everywhere. It didn’t have air-conditioning and that is hot in summer. Here in the Netherlands we usually only have a couple of hot weeks but I drove the tiny Lupo through Europe in a road trip of almost 5000km/3000miles back in 2019 when traveling was still an option. Temperatures were above 38 degrees Celsius or 100 Fahrenheit almost all the time and we were driving hours an end with the windows down. It was sweaty and sticky, we had a blast, it was awesome!

And yes I also drove that thing to work and took coworkers with me when we carpooled. It served me well. Sometimes we were 5 adults in that tiny little car. So glad I was not in the back seat.

It broke down and instead of repairing the 21 year old car I sold it to the car dealer and bought a new used car this month. It was time for an upgrade. This one has electric windows and central door locking! What a luxury! Air-conditioning? Nope. This one is just 18 years old and cost me just 1600 euros. It has extremely low mileage and I think/hope if I treat it well this one will serve me for another 3-8 years. Fingers crossed!

I digress. The point here is, if you have absolutely zero money and you need a car right now, you might want to borrow some money but I really plea for buying something (way) under 3000 euro/dollar. This way you can pay it back AS SOON AS POSSIBLE. Not just the required minimum. No, as soon as possible. If you absolutely hate it, upgrade once you earned some more cash. Trust me you will be extra grateful for all the luxuries like electrical windows.

Next up: Student loans

I’m from the Netherlands and studied here. For this I am very VERY privileged. I studied when we all still got study grants. It’s a monthly payment from the government you could pay tuition and books from. The amount also depended on the income level of your parents, so the less fortunate got a change to go to college as well. A lot has changed, not for the good since 2009 when I started college. I don’t know precisely how it works now but most of the study grants have to be paid back and are a student loan now I believe. But, almost all colleges and universities (except for private ones) have the same fees for the first bachelors or masters you get. For a second degree it’s a different thing but let’s keep that out of the equation. I know this is not the same in every country. If the tuition fees different from school to school, search for a school with relatively low tuition fees. Search for a cheap place to live if the school is not close to where you already live with your parents. This includes sharing kitchen with roommates, sharing bathrooms and toilets with roommates and living tiny. Then if you have ANY time left after studying, spend as much as possible working a side job, especially if you would otherwise ‘waste’ that time chilling, watching Netflix or drinking beer.

On the other side, if you work so much you are going to skip college and fails exams because you work so much, it is best to actually get your degree first and work after you get your degree.  

Also think really long and hard if you even want to go to college or university. Maybe you can get really good at something by working and climbing in position. You have approximately four years to get as good as someone who studied for four years. And don’t have to pay tuition fees that time. You also have about four years to start your own business before your friends from college are done studying and start their job/business. This is a very personal choice but take in consideration.

Onto the debt that is called mortgage.

Buying versus renting can be a tough decision. If you are able to make this decision you probably worked your butt off to be able to buy a house. Congrats on you!

Should you buy a house, even if you could? This is a hard one, depends highly on your life and the place you want to live/are living and how flexible you want to be. In the Netherlands on the long run, buying is cheaper then renting, and after 30 years of paying off your mortgage your house is yours and that is something you don’t have to spend each month. In the short run however, it is debatable. In the expensive areas like Amsterdam, Rotterdam, The Hague and all that is within about an hour drive of those cities, renting is super expensive but buying is super expensive too!

No matter where you live, think about how long you want to live there and make the following calculation. (The next is all calculated with made up numbers)

How much rent or mortgage would I pay over this amount of years (let say 5 years in this example).

How much extra costs would I pay in this 5 years.

For rent this is usually not so much, you don’t have down payment on the house, except for a deposit which you receive back if you leave the place in good condition. If something breaks or gets clogged you call the landlord to fix it, etc.

Do account for rental prices to go up.

Example: You pay 1000 per month in rent and rent goes up 5% each year. In five years you paid about 66.300 in rent.

Now if you buy the same house, how much do you need to pay in 5 years.

This is the monthly payment, the down payment (here it’s between 5-8% of the total amount of the house, realtor, taxes, mortgage etc.), constructions, repairs, home improvement etc. This amount adds up quickly, I know from experience.

You pay 1000 per month on it and because you have a fixed rate, after 5 years it’s still 1000.

You pay 60.000 in five years. Down payment is 12.000, constructions are 30.000 (it needed a new bathroom and desperately some double glass or something like that and some painting or wallpapering that will make it look modern and up-to-date. The plumber comes twice, the heating was broken, there was a flood, you name it. You are probably insured for some of it but it will cost you some as well. Let’s say 5000 total.

Total costs: 107.000

Buying costs 40.700 more than renting in this example. Renting is more profitable in the short run, besides you have a lot less work to do on maintaining the property.

How much is your house worth in that amount of years from now (in this example 5 years). And extract if from the total.  Now here is some guessing but make a good estimate. How much did you actually pay off already? Take that off as well. If you have a low interest rate, this might actually be almost half of your monthly payment.

In this example the value of the property has gone up by 30.000 in 5 years. Marked has gone up and also you improved the house, the bathroom and so forth. If you have a low interest rate you may already have paid off a lot on the house, as (only) about 60% is interest in the first few year, 40% of the monthly mortgage is actually going towards paying it off. Here that is 40% of 60.000 = 24.000.

Now extract both from the initial 107.000 you put in it and you have 107.00-30.000-24.000=53.000.

Renting was 66.300 over 5 years and buying 53.000, now you are at the good end of the equating buying. The longer you own the property, the more in your favor the calculations will be.

Make this calculation for your living area, situation, and time you plan on living somewhere. You can imagine living somewhere for just a couple of years, renting is a good option, but if you want to live somewhere for a long period of time, it can be (way) more profitable to buy.

So, I have to disagree with the Minimalists here. A mortgage may not be a ‘ good debt’. It may be a financial good decision and save you money in the long run.

What is your opinion on debt? Let me know in the comments below!

Till next time,

Elske

I am not a Financial advisor nor am I YOUR financial advisor. I am not a trained financial professional. This blog is for entertainment purposes only.