The Other Cost of Debt

Recent years have caused much debate over the impact and opportunities available to Canadians due to the high availability of cheap credit. Much has been written in personal finance circles about how the costs of credit cards, mortgages and zero percent financing on car loans can add up over time, regardless of low rates. The fact is that the hard costs of borrowing money (ie. interest payments), although not always intuitive or simple, can always be quantified. That said, I’ve found there is another possibly even more substantial cost to borrowing money which makes up the topic of today’s post.

The backstory

To give you some context, let me go back a few years. Compared to most of my generation, I consider myself very fortunate. I graduated university with a Master’s degree – completely debt free. In fact, during my university days, I never once had student loan, car payment or line of credit of any type. How I managed to do this will probably end up as topics of future posts but to make a long story short for now, the only real debt I have ever incurred has been the mortgage on my house.

Since I had never had a debt before I purchased my first house, the sheer size of the mortgage amount I had taken on weighed heavy on me. After signing the papers, I recall realizing that I had just made a promise to pay a huge amount of money, an amount I had no way of paying off in a single paycheque, in a month or even in a year. Furthermore, the payback period was scheduled to be 35-years long; a time-frame much longer than I had even been alive! I knew this was going to be much different than the $700 in monthly rent I had split with my university roommate shortly before that. I didn’t know it then, but I was about to discover something about debt that the Bible had already detailed long before:

The rich rules over the poor, and the borrower is the slave of the lender.
-Proverbs 22:7 ESV-

Buying your way into slavery

Taking on debt is like buying your way into slavery Tweet!  and for the first time, I understood on some level what feeling like a slave really meant. To get what I wanted, in this case a house, I needed to give up something in return; there were going to be some trade-offs.

Freedom is the first thing you trade away. Your time is no longer only your own. I could no longer choose to work, I HAD to work. I served the debt. There is a reason they call the whole process “debt servicing” and why they track these statistics with things like “debt service ratios”.

The second thing you trade away is certainty. If the interest rate is higher when I have to renew my mortgage, there isn’t much I can do. I’ll have to pay the new rate and perhaps adjust my spending accordingly.

Finally, you trade away that feeling of peace and this was the trade-off I struggled with the most. Unsettling questions crept into my mind: What If I lost my job? Would I have to declare bankrupcy? Would I have to take a job that doesn’t fit with my morals to be able to pay this debt? Things that never crossed my mind before were now all I could think about. I really disliked the notion of something having so much control over me.

Know what you are getting into

Now, I didn’t write this post to talk anyone out of buying a house. Although I feel debt should be avoided wherever possible, the reality of large purchases like a house, do generally require it and can still work out to be good financial decisions. I mention the above feelings because I wanted to share that while I had the mathematical skills to quantify the exact interest cost I would have to pay, what I did not fully appreciate was the emotional costs that would go along with it. My aversions to debt are often derived from these feelings so while I consider a home for my family to be worth the current trade-off in freedoms, most other purchases aren’t  worth it and so I don’t use any debt to finance them.

How I got my peace back

Though I was happy to have a home, I had to do something to combat the uneasiness I felt about having the debt. My wife will tell you that I am much calmer when I have a plan and that if I can turn that plan into an Excel spreadsheet, I get downright giddy! I am a bit of a nerd that way. I was 26 when my wife and I purchased our first house. Shortly after, I set a goal to be mortgage free by the time I turned 40. Paying off a 35-year amortization in less than 14 years seemed like an ambitious plan and at the time, I didn’t exactly know how we would accomplish it. What I did find was that setting the goal was exactly what I needed to stop feeling oppressed by the debt and start feeling empowered that it wouldn’t be around forever.

Through this blog I plan to share the strategies we are using to work towards our goal of a paid off home; what has worked for us and what hasn’t. Hopefully you have made some financial goals as well and are working towards them. I would love to know what they are and how successful you have been at achieving them.

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