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Originally Posted by trm2
It is worse than that. Just because you can make the payment doesn’t mean you can afford it.
Why have an escrow account if you don’t need it? Once a year I pay my property taxes and insurance. I get to keep my money and earn on it vs having an escrow account earning zero. It is kind of like getting a tax refund from the fed, that is one of the last things you want.
Yes sometimes debt is good. I have a mortgage balance that is less than one year of net income at about 2.5%. I also have a brokerage account (outside of a retirement fund) with enough to pay said mortgage balance. That account is in a very well balanced fund that has returned over 19% over the last 12 months. True the S&P is over 30% in the same time, but I am way ahead by having a mortgage.
Like others have said, debt is a tool. Used properly, it can help build great things. Used improperly, well, any machine is a smoke machine if you use it wrong enough.
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Many business use debt to increase the size of their business. They raise cash by selling corporate bonds. Rather than borrow from a bank they sell the bonds to anyone at a set interest rate. One great of example of this is Microsoft. A company who has enough cash yet proceeds from the seven-part deal, which includes a 10-year bond with a 3.3% coupon, used for general corporate purposes, including the repayment of short-term debt used to help fund Microsoft’s $26 billion acquisition of LinkedIn Corp.