What I wish I knew @ 18 before I took out debt
When you are young you can’t wait to grow up and be able to do whatever you want. Magically when you turn 18 you are suddenly able to do almost everything. You can gamble, smoke, go to college, get married, get a credit card, your own bank account, and make all the mistakes you want to. The problem is in most households nobody talks about how the decisions you make at 18 can have long lasting effects on your life. The things I wish I knew at 18 include:
College debt is not “good debt.” Debt is debt, not good or bad. Some people would like to try to convince you that it is an investment in yourself so you have permission to take out as much money in student loans as you want, WRONG. Student loans add up quick while you are trying to pay for your education and all the things the colleges make you add in, like forced dorm and meal plan costs for Freshman. The books and supplies aren't cheap and it has somehow become acceptable to use student loans to float your living expenses and vacation costs while in school. Then when you get out of school 6 months later you have to start paying years of expenses back on an entry level salary.
You don’t need credit if you have cash! Credit scores are literally just a number that represents how much debt you take on and how good you are at paying it back. The more debt over time that you pay back on time, means that you can take on more debt and more debt. If you pay with cash you don’t need credit. The funny thing is both cash and debt can grow with interest. Why not invest your cash early instead of building up your debt to build the credit score. P.S. you can be a millionaire and your credit score will not reflect your buying power with cash. It only reflects how well you do with debt.
If I had started investing all that money I was paying to store cards, credit cards and car loans, I would be set right now. The earlier you take advantage of compound interest the better. By not investing early and taking out debt I put myself way behind. I used the investment calculator on Ramsey Solutions to see the difference. If you start investing $80 a month at 18 years old and continue investing for 47 years (retire at 65) at a 10% rate of return it would be $1,025,532. If you wait until you are 35 years old and invest that same $80 a month for 30 years (retire at 65) at 10% rate of return you only get $180,838. In order to get close to what you would have made in the previous equation you have to invest $453 a month.
If I had known these things at 18 life would have had a very different track. I suppose I have become the person I am today partly due to the mistakes I have made a long the way, but I hope that the next generation does not have to make the same mistakes. So, let’s agree to stop telling kids to take out loans to go to school, they don’t need to build their credit scores and instead of racking up debt they should start investing as soon as possible. Go plug your numbers in the investment calculator and see what you need to invest to get to your goals.
