‘Good Debt,’ ‘Bad Debt,’ and the Obama Administration

A video from Mashable, titled “Debt Isn’t the Boogeyman You May Think It Is,” starring Kal Penn, the former associate director of Public Engagement for Barack Obama, unintentionally highlights the failings of Penn’s former boss by telling the truth.

Penn commences his elucidation of how debt works by stating, “Not all debt is bad, and as long as you know how it works, debt can’t necessarily hurt you.”

He continues:

Despite what you may hear on TV, debt doesn’t have to be scary. In a lot of ways, properly managed debt can actually be a good thing. To start with the basics, debt is money that you borrowed and need to repay. You also have to pay interest, a percentage of the borrowed amount that’s tacked on to your final bill.

Interest gives lenders a much-needed incentive to bankroll your purchases. However, interest is where debt can get a little sticky. For credit cards, in particular, if you aren’t diligent about making payments, the interest can build and build, leaving you on the hook for a sum of cash that is much larger than you anticipated.

That’s what we call bad debt.

You can avoid bad debt by steering clear of frequent high-interest borrowing, like maxing out credit cards, not spending money you don’t have on things you don’t absolutely need, and not letting your debt balance linger.

Penn then segues into the advantages of “good debt”:

Then, there’s good debt. Good debt is really anything that makes sense to pay for over time; this category includes low-interest loans, and purchases that can appreciate in value. Two of the best examples of good debt are mortgages and student loans, both of which have long-term value and generous interest rates. Good debt can also include smaller, shorter-term loans that can help you build a strong credit history. Select car loans fall into this category, along with limited amounts of low-interest credit card spending.

Debt isn’t something to fool around with, but it isn’t something to be afraid of, either.

According to usdebtclock.org, the staggering national public debt, which represents the face amount, or principal amount, of marketable and non-marketable securities currently outstanding, stands at roughly $18.8 trillion, translating to over $58,000 per citizen and roughly $157,000 per taxpayer. United States’ total debt, which includes household, business, state, local governments, financial institutions, and the federal government, now amounts to an astonishing $66 billion, up 144% since 2000.

The interest paid on that debt now amounts to $2.4 trillion, roughly $7,500 per citizen. Student loan debt stands at around $1.3 trillion, while credit card debt stands at $940 trillion.

The recognition by the Obama administration’s former staffer that debt you can’t repay is “bad debt” underscores Obama’s own fiscal irresponsibility. The attempts to paint student debt as “good debt” merely demonstrates a willingness by the creators of the video to overlook the reality of debt to help push Obama’s political agenda.