Question

Mark and Ryan just moved into their first apartment together and they want top buy a flat screen TV for the living room. They both work but between college tuition, books and rent their funds are running low. Mark decides to take advantage of a financing offer from a local electronics store and buys the TV on a line credit. [is this a good or bad debt move and why?]

Answer 1

This is a bad financial move for several reasons:

• He doesn't have the money to pay back the loan now, and will not magically get more money later (even if he gets paid soon he already has more rent and other expenses to pay)
• If it is a high-interest loan and he makes the minimum payment each month, the interest will continue to grow and it will get harder and harder to pay off
• A TV that you owe money on is a liability not an asset. Borrowing money to get a car that you use to drive to work and earn money is one thing, but borrowing money to but a TV that will never earn you money is not a wise decision.