Consumer debt is bad. Buying lots of Stuff on credit cards is a sure path to financial woe. But while some people argue that all debt is bad, most experts agree that certain debts are acceptable (good, even). The two most common examples are mortgage debt and college loans. The average person cannot afford to pay for either of these outright; borrowing money allows one to invest in her future.
So what happens if you’ve always avoided debt, and suddenly one of these expenses rears its head? Amanda wants to know:
My husband and I are newlyweds. He’s starting dental school this fall. Four years at $50,000 per year is frightening for me — I have never been in debt at all! I know it’s a good debt (educational as opposed to credit cards), and I am absolutely 110% behind my husband; this is his dream. I am also comfortable being the breadwinner for at least the next four years.
We’ve built a nice emergency fund, and we’ve been saving for our retirements. It’s just hard for me to wrap my head around $200,000 of debt, especially when we’ve been working so hard to save. How do you prepare for such a large debt? What ways are there to cope with it? What can we do to prepare?
When I shared this question with Kris, she had a great piece of advice: “They should start handing out candy to the kids they know.” But aside from consoling herself with her husband’s future job security, what can Amanda do? This is a great question, one that can be applied to a number of circumstances. What can you do to cope with the realities of a huge mortgage? Unexpected medical expenses?
It sounds as if Amanda and her husband have made some good first steps. An adequate emergency fund will help to protect them from additional debt. A commitment to a frugal lifestyle can also play a key role. But what else? Is there anything a person can do to mentally (and financially) prepare for enormous debt?