Excellent comment about debt

Ramit Sethi · July 19th, 2007

A Million Paths leaves this excellent comment on my recent post, When your debt feels like your arm.

I was going to say something about how I agree and how debt is bad and blah, blah, but something really bugs me about everyone’s comments.

Debt is the new fat. It’s just one more thing to be ashamed about and carry guilt about., and for other people to be pious about and to lord over other people about.

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I have a ton of student loan debt (no credit card debt), but I spent seven months living and teaching English in France. Maybe I should have stayed behind earning a bigger paycheck working to pay my debt. But I’d been working real jobs for three years and the debt was still there, and I was still struggling to get by, and I wasn’t going on vacations or anything, and the debt could possibly be with me until I’m 40 if I do all the “right” things and by then I’d be too old to participate in the program!

I have a friend who now has as much student loan debt as I do (she got her MBA) and a mortgage and a husband and right now she’s miserable. She’s spent her entire life post-college, and doing everything “right” and while she’s probably in better financial shape than I am she’s infinitely more trapped. Not just because of the debt, but because of the mindset that comes with thinking that finances can dictate her life instead of the other way around. Your life dictates your finances. If you want something badly enough you can find a way to afford it that doesn’t involve getting into hock up to your ears.

We’re not taught that.

I think careless consumer debt is dangerous mostly because it stops people from living the lives that they really want to lead. But I think the opposite is true too. there’s such a thing as being too cautious too. Of waiting to do everything “the right way” and ending up dying and not having done anything.

Money is not an end in and of itself, it’s a means to an end.

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  1. I agree with this post – it’s a matter of what’s most important to you and how you allocate your effort and time in the short time we spend on this rock.

    However, I think the comment sums it up nicely in the end… there’s a balance – buying everything in sight is dumb, but so is living in a cave and never spending a penny.

    Some people get off on seeing a huge balance in the bank (or no balance on a debt ledger) whereas others are willing to accept the added cost of carrying debt in order to enjoy life the way they want to. Very personal choice, but what’s important is that people are educated enough to make the choice in an informed way.

    Here here for balance! Great site, Ramit… keep it up!

  2. I agree with “A million paths”. My younger brother, who apparently is infinitely more wise than I, lives frugally but doesn’t deny himself the fruits of his labor. I was once spouting the virtues of being austere with ones finances, when he easily retorted, “hey bro, do you work to live, or live to work?” He quickly silenced my tirade and admitted than saving is good, but not the only thing. Thanks A Million for the reminder. (no pun intended)

  3. That’s true and a well-thought-out answer, but you have to be careful when adopting an attitude like that about money or you may end up regretting it later.

    I have a close friend who basically decides what experiences she wants out of life, and goes and buys them without regard for her salary or future earning power. She’s a part-time executive assistant (secretarial work) and a part-time waitress. She has bought a condo downtown that she lives in which is just barely within her means to afford, and she financed the downpayment with a loan because she had no money saved but wanted to own real estate. She owns a car that she loves. She doesn’t ever drive it because she lives downtown and doesn’t need a car, so she has it uninsured sitting in a parking spot that she pays a ridiculous annual fee for, and the car isn’t paid off yet. But she refuses to sell it because the car makes her happy. She also decided this year that she needed to travel for a year to “find herself” and she would regret it if she never took the time off to do this, so she is currently living the high life around Asia and Europe, financed entirely by a loan, and she is not bringing in any income for the entire of 2007.

    I know she thinks it’s worth it now, but I hope she still thinks so when she’s 40 (she’s 28 now.) I’m very afraid for her that she’ll end up bankrupt with the debt she has taken on to finance her must-have experiences of a lifetime.

  4. I suppose that is one way of looking at it. On the other hand, debt continues to be money borrowed from your future. Not paying it off reduces what you can do, just as lending money increases what you can do.

    The money you spent in university still costs you today. This might not matter if you are happy with what you have at this moment. It doesn’t change the situation. This can be taken further – if you continue to spend more than you earn, the amount you will be able to do gets smaller and smaller. Many people are in that situation. Many won’t turn it around because they feel they would have to give up their lives! You are always going to pay for what you do – the more efficient you are with your money, the more you’ll do. It seems efficient to reduce debt early and abruptly than slowly and over a longer period of time.

    Either way, it should be approached from the mindset of measuring what you want now relative to what you want in the future. If you enjoy your present life so much that you don’t want to build towards anything, it doesn’t really matter if you plan ahead, save or pay off your debt.

    That makes the real question “Will you/they be unhappy in 5 or 10 years?” And maybe even more importantly, is it really the debt that is making her unhappy? Many people get married and settle down too early – this doesn’t mean that the alternative is to be spending your future and enjoying life. I’m not sure how the ‘right’ thing includes getting married and having a mortgage – neither are purely financial decisions and could simply be someone who didn’t listen to their inner voice. Maybe it’s the expectations of a giant house that are draining the joy out of it – I’d say that happens a lot. What would of been unusual is not getting married or having a mortgage in order to pay down the debt and being miserable.

    Just ask if slashing your budget and owning a smaller home so that you could pay off your debt (and/or save) enough that you could take an extra vacation every year – free in the sense that you paid for it in the past – would make you happier overall? Will they remain as miserable when they no longer have a mortgage (say, “a raise” of 35%)? Will the satisfaction of having the money to put their kids into university without the bondage of loans be worth it? What will really make them happier over the course of their lives?

    What I see in my own life is that the happy ones are those that have the flexibility to do more while having a secure future. You just don’t see them very often – they are the quiet ones that you don’t really expect to have money.

  5. Araceli Romo

    I agree that everybody thinks diferrently inregards to debt. I personally can’t wait to finish paying off my car loan. I pay as much as I can every month and limit myself from buying other things and at the same time I save a little in my savings account. I figure that if I keep it up and when my loan balance is low enough, I’ll transfer all of my savings to pay it off. That is my idea of balance.

  6. I don’t think that person who wants to take a big trip yet has debt needs to make such a stark choice. It is possible to live a fulfilling life without sacrificing saving and while paying back debt.

    Personally, I do not like to wait for the future to fill my life with interesting experiences and travel. I travel for work so I take a little extra time to explore the places I go. I take vacations to exotic locations but I stay in cheap (but clean) hotels. I don’t have cable TV or buy a lot of crap so that when I want to travel or splurge on a last minute experience, I can afford to do it.

    I cannot afford to do both – live an extravagant life and save for the future. Most people I know cannot do both either. However, I can afford amazing life experiences and save for the future. I choose experiences over purchasing more crap for my house, more clothes, more shoes more Starbucks. Some people I know choose to buy a lot of crap and then wonder how I can afford to do what I enjoy without going into debt. We all define quality of life differently, I guess

  7. Starving Artist

    Amen! I’m personall buckling down for a year to get rid of my debt, but ONLY so I can live a better, more travel-filled life. I wanted to move about a year ago, and I realized I didn’t have the money to do it! If I get rid of all my bad debt, it’s about the same as giving myself a 20% pay raise, and I intent to do something fun with (some) of that money! Money is a means to an end.

  8. I agree. Debt is the new fat. It’s true… I hate sitting next to debtors on plane flights. I wish the airlines would pull their credit report and make them buy an extra seat. It’s only to us people who aren’t in debt.

  9. Moneymonk

    I believe in expanding your means, than living below it. My only debt is my student loans and I am currently paying it off. But I do not want to give up my lifestyle by rushing to pay it off so I take my time and find additional income to pay off the debt and also still have a life. You don’t have to live like a caveman all the time to get rid of debt .

  10. detlvr

    I love when people act like student loan debt isn’t that big of a deal. Cracks me up. They have no idea how much their diploma cost them. La-dida-da.

    If debt is the new fat, Millions will undoubtedly develop heart disease– but damn those croissants were delicious weren’t they!

  11. Most of the comments I’ve read regarding this post (and the original post that this one references) discuss the personal results of financial decisions. But I’m also a firm believer in the social effects of spending versus saving. People in debt affect others around them. Bankruptcy not only affects a person’s credit, but it affects that person’s lenders, who suddenly have to bear the debt burden of the bankrupt consumer. And that cost is ultimately passed on to other consumers, through higher interest rates and penalties. Social programs that are set up to help low income people are also strained when more and more debtors apply for assistance, which ultimately affects the millions of tax payers who are taxed to pay for those social programs. I could go on and on but I will digress.

    “A Million Paths” is right – debt is the new fat. Obese people who have health issues as a result of their obesity increase the cost of everyone’s health care. And it’s an easy problem to fix with a well implemented plan and the desire to meet one’s goal. Financial well being is just as easy to obtain… all you need is a well implemented plan and the desire to meet your goal.

  12. What an idiotic rationalization. Don’t you foresee what this line of thinking is turning this country into? Open your eyes to a sense of urgency that will parallel the great depression.

  13. Debt is a tool

    I agree that careless consumer debt is very dangerous and often not used properly. On the other hand, debt itself can be used wisely as a tool. Student loans let you increase your earning power, if you pick a degree that will pay itself back and you pick an institution that doesn’t cost the same as a small mortgage for 4 years.

    For example, I received a degree in engineering and payed for it myself. I didn’t have the cash after high school so I used student loans. I now have the bulk of my student loan debt locked in at a ridiculously low 2.5% (going down to 1.5% in 6 months).

    Just remember that debt is a tool that when used wisely can advance one’s standing in life, but it is a trade off that you have to make.

  14. Customer's Revenge

    I wholeheardedly agree with the comment you posted. Personal finance websites and advisors seem to want everyone to become a money-grubber, spending all their time saving and analyzing instead of living. Granted it’s because that is the topic of their websites, but money grubbing is not the reason for living nor the road to happiness. Inot that long ago because I became a little disenchanted with all the constant harping on the stupidity of buying a cup of coffee, going on vacation, buying a car you like, etc.

  15. Yes, I know exactly how much my diplomas have cost and will cost. I probably know more than those who had parents that paid the tuition bills. I have tons of student loan debt from college and law school, and yes it is hard. But, my life would be much worse if I had never gone to college and law school. I’ve met people from around the world and I have a career – and in the end I did it myself.

    I grew up in a lower middle class household in a rural county in Texas. My parents couldn’t afford to send me to college and white girls with two parents who work don’t qualify for the free money to go college. So, I took out student loans to pay for college and then law school. Yes, I could have stayed in my home town and gone to community college and then took a job at walmart like most of the people that I went to high school with. I wanted more for my life and I’ll be paying for it for a long time, but I’m okay with that. La-dida-da

  16. Debting Thomas

    The problem lies in making money your higher power. Lack of or not. I know rich people that are miserable and poor people that are miserable.

    I believe in living within my means. Still climbing out of credit card debt (and not using them anymore) it’s been my experience that when I buy things with cash I feel better, cleaner.

    Got to PBS Frontline and watch “The Secret History of Credit Cards” . They want to keep us as debt slaves and i refuse to do that anymore.

    That being said. Money is no longer my God. It’s just a green piece of paper.

  17. Two comments:

    The first is his interesting statement that “It’s just one more thing to be ashamed about and carry guilt about., and for other people to be pious about and to lord over other people about.” Look at most of the comments here. Some are seemingly bragging from one perspective, but looked at from another perspective they may just be -overjoyed- to be out from underneath the burden of debt. But it is a very interesting perspective from someone looking at the issue of debt. That sentence has a lot of implications in it for both sides of the coin.

    The second comment is more about recognizing what debt actually is. Debt is a form of leverage. As we all know from physics, a lever can be used to effect the amount of force required to move an object. We normally think of it as something where we can use a small amount of force to move something heavy.

    I.E. If you had $20 to invest, and earned 10% you’d make $20. If you borrowed another $10,000 on top of that $20, and earned 10% interest, you’d make $1,002 with the same amount of initial money. What’s the difference between those two scenarios? Risk.

    We tend to look at debt as a “bad” thing. It can be bad. Some will swear it off as always being dangerous. “it can be dangerous”. But more importantly it IS a tool. And it goes hand in hand with Risk as well as return. Debt can not be accurately evaluated without also weighing those other two items (risk and return).

    Make no mistake, a care free approach to debt IS dangerous and is how most of our society regards debt. The right way to evaluate it is through the lens of reasonable and responsible understand of debt and risk (and return).

  18. I think this is an example of the fact that a lot of personal finance advice isn’t very personal. “Debt is bad” might make for a good personal finance post, but without knowing a person’s goals and values and habits and circumstances, what might be good advice for one person might be bad advice for another. To some extent it’s just the nature of the beast– you can’t really tailor your posts to each individual, but a reader should use a critical eye in deciding what makes sense for them.

  19. detlvr

    LB, I also knew how much my tuition was costing me. For instance, I knew that if I used student loans to pay for my $225/mo boarding room for 3 years, and I spread out the payments over 30 years like they recommend then I would be paying nearly twice that much even at a reasonable interest rate of 4.9%. And I didn’t even need to borrow money to go to calculus class to figure that out!

    And to counteract your sob story I should point out that I also grew up lower-middle class and did not qualify for any free money due to whiteness and parental employment. So when I ran out of my own money I dropped out, got a job, played in a band, traveled the world, “met people from around the world” (do you honestly think that the only way you can meet people is to get a law degree?), joined the work force, and now I travel the world on the company dime and pull in more cash than I ever thought I would. All without owing money for a diploma.

    Your quality of life is not directly proportional to the amount you pay Sallie Mae each month. Heck, I know several people with 5-figure student loan debt and they work at the proverbial coffee shop.

    You just got suckered into thinking that student loan debt is “good debt”. Let me guess: you also went to an out-of-state school for “the experience”. Awesome. You’ll make a great consumer. Remind me to buy stock in Walmart.

    If you want to go to Europe, fine. Go to Europe. Nobody is stopping you. Just don’t lie to yourself trying to make yourself feel better about putting into deferment the debt with which you bought your diploma which you’ve deluded yourself into thinking is somehow required for a higher quality of life. La-dida-da, indeed.

  20. Student loan debt is a different animal from credit-card debt or a car loan, because (like mortgage debt), it buys you something that appreciates in value. For about what it would cost to buy a good new car, you can get a degree at a decent public university. Twenty years from now–no matter what that degree is in–most college graduates will have earned a lot more through their jobs (which are likely to be jobs they don’t hate, loathe, and despise) than they spent on the diploma…but after twenty years, a car purchased for the same price will be worth nothing. Fact is, college graduates make better money than people without diplomas, and a graduate or professional degree generally (over time) lets you earn even more. Check it out: or google “college graduate earnings.”

    As for making the Grand Tour of Europe while the debt load sits home and accrues all by its lonely self: Hey! Each to his or her own. Honi soit qui mal y pense.

    (Don’t know what it means? It’s not too late to go back to school!)

  21. Forgive the assumption but this article appears to have been written by a twenty-something.

    I am sure you truly feel your response to your debt and the issue of debt in general is right. And maybe for today it is. But what about tomorrow? You will be shocked when you turn around a few times and you are 40 years old (or older, in my case) with kids, a pending retirement, parents who may need financial help, etc. Life is going to happen to you whether you want it to or not and you have to be prepared for it. Your comments indicate to me that you feel it is important to live for today because life is short and you don’t want to miss anything. In reality, that is a perspective that leaves you unprepared for the unknown which will be happening to you everyday starting tomorrow.

    Debt for certain things in life today is reasonable. But I think you became a little overwhelmed with your debt and decided to change the way you feel about it instead of eliminating it. I hope for your sake you will rein that in somewhat and realize that failing to do nothing (or just the minimum) is not the best choice for your future. Remember, virtually every financial decision you make in your 20’s will affect you in your 30’s, 40’s and beyond. And doing nothing is a decision requiring action (avoidance).


  22. hypatia

    I completely disagree with the parent post.

    I was in some student loan debt a few years ago. It sucked. I was paying down extra when I took off a year from school for an internship, and that felt good. I was getting somewhere. When I finally, finally stopped playing at grad school and got a job, after a year I was able to save, pay down student debt, AND travel.

    It takes you a year and a half of consistent employment, living below your means, and saving to shore your finances up. Moving from job to job, going to school full-time, moving to another state … these are disruptive actions that will keep you from getting ahead and keep you frustrated.

    I feel so much better now that I have positive net worth.

    There is a great graph in one of the financial books I read in the library which shows that a family that saves 10% of their income every year has lower consumption for the first two or three years than the family with identical initial income which doesn’t save, but after about five years they not only pull ahead but start steaming along in their consumption leaving the non-savers far behind. This is because the savings start to create income, and in this example, the 10% savers spent some of the savings income. It is a very, very modest savings example–not super saving at all–yet it makes a HUGE difference in only a few short years. (I think the chart may be in the Automatic Millionaire, but I’m not sure.)

    Read The Millionaire Next Door. Listen to the Dave Ramsey show. Read Smart Women Finish Rich. Read The Richest Man in Babylon. These books will change your life.

    Btw, being in debt, just like being fat, does nothing for your self-esteem, no matter what your yesmen friends say. (Sure, they might be in debt too and supposedly loving it … but that doesn’t make opening your CC bill any better.) It also puts you at risk financially (just like being fat w/r/t your health). So, good analogy, bad conclusion.

  23. Sure, you think student loan debt is great. If you go to a state school and graduate with a little debt it’s not so bad, but those going to private schools now can often have over $180K of debt. That’s not so daunting if you make a BIGLAW salary of $160K – but the odds of getting those jobs are pretty slim. If you do, you racket up a lifestyle to hang out with your other law firm buddies who say that you have cheap debt, why would you ever pay it off. Heck, buy a condo, a car, and get married so you can enjoy indentured servitude to your firm. And, if you don’t get that job, well there’s lots of $50K starting law jobs. Good luck paying off your $180K on that salary.

  24. Anonyjomous You will not understand debt until you watch this video.

  25. A Million Paths

    I’m the one that left the original post (whoa and was I shocked to find out that I’m up here).

    For the record, yes I’m a twenty-something: I’m 27. I don’t think that, really this is about me, so I’m going to be short on details, but basically all I’m going to say is that I my debt is all student loans, I live strictly within my means, and I don’t own a car or any large consumer goods, I brown bag it almost everyday, and that my trip to France though it I didn’t kill any more of my debt, I also didn’t wrack up any new debt (the beauty of working abroad).

    The point of my original post, was to reframe the debate. I am by no means championing debt, I think debt is a trap, but I think that being obsessed with money, or with not being indebted is another trap. I’m a big, big, big fan of the simple living movement – of figuring out the things you really want in life and actively pursuing those things. Those things generally don’t involve a big house, a big boat, etc. In fact those things are usually what you pursue when you work a lot at a job that makes you unhappy, or are otherwise unhappy in your life – studies have shown that it matters less how much money a person makes, and more how much a person makes in relationship to his peers (you can be very happy earning very little as long as the guy next door earns even less and as long as you’re all above the poverty line). For me happiness involves helping others, being able to meet my needs, traveling, and having control over my time.

    I’m not saying (as has been implied) that it’s important to live for today and to worry about tomorrow, when tomorrow comes, simply that it’s important to live for today with the realization that tomorrow may not come, but also that it might.

    I likened debt to being fat, not because I believe that being fat has no health repercussions, but because people use weight to be bigoted: to deny people jobs, to judge people, to make themselves feel better, etc. And increasingly people are doing the same thing with debt, and just like some of the most vicious critics of obesity can come from people who used to be overweight, it seems as though some of the most vicious voices are from those who used to be in debt. And both are treating the problem at hand (i.e. obesity, debt) as a moral issue instead of as a health/financial issue.

    People kill themselves over having too much consumer debt (I’ve heard of several college students who have done this, in fact) because of the morality and horribleness we’ve attached to debt. I am *not* saying debt can’t be a problem, but people should never, ever, ever, kill themselves over money, and the attitude that I’ve found in some of the responses on some of these posts are so horrible (how can they be so stupid etc) it just makes me, quite honestly, want to cry. And lost in all of this judgment it seems is the point of money: to live. I was not saying that people could, or should finance themselves to the hilt so that they can buy flashy cars, or big homes, or to paraphrase a quote “buy things we don’t need to impress people we don’t like”, I was simply saying that lost in all this criticism of consumer debt, is just the point of what money is for.

    I said that “your life dictates your finances.” If you want to vacation at five star hotels, and live in a manhattan penthouse, you’re going to either have to have a lot of money or a lot of debt. If you want to live more simply you can have a lot more expenses and a lot less (even gasp) no debt. Everyone ignored that.

    Debting Thomas, I own Frontline’s the secret history of the credit card. I use it when teaching financial literacy to inner city high school students 🙂

    Lastly, hypatia, I’ve read several of the books that you’ve mentioned, and several that you haven’t. I’ve also seen the Dave Barry show. I politely disagree. The book that changed, my life, was Your Money or Your Life by Vikki Robin and Joe Dominguez.

    P.S. I’m a girl

  26. I am like your friend. I am a 25 year old recent college grad who, 2 months out of college, nailed my “dream job.” I am compensated extremely well for someone my age and I regularly put a few thousand dollars away per month accross various accounts – my 401k match, my Roth IRA, my taxable index fund account, and my high interest interim savings account. I have NO debt and I also pay off my credit card every month. Suffice it to say, financially I can’t complain…but this post resonated with a part of me that thinks this might not all necessarily be a good thing.

    My passion for my job has faded fast – long hours have denied me of a social life and, as an extremely social person, I struggle daily with the notion that I am literally missing my mid-twenties. Most, if not all of my close friends left college (with or without debt) and did what your friend did – traveled abroad, either teaching or simply exploring. Some have subsequently returned and are facing large amounts of debt, but they continue to pursue their passions and interests while working to pay down this debt. They may not have as much in saving as I do, but they have a wealth of amazing post-college travel experiences that I opted out on, AND a lifetime to work towards financial stability.

    Meanwhile, I am trapped into a life that is increasingly surrounded by red tape and choices to be made around my finances, and as responsibility grows on the job front, my window to travel the world or enjoy my mid twenties is closing.

    Knowing what I know now, I would much rather have racked up debt to have EXPERIENCES out of college, rather than do things “right.” I let my finances dictate my life choices and realize that avoiding debt may have cost me great times and great memories.

    I am a living testament to the tone of this post and I would like to echo the authors sentiment to plan your life FIRST and worry about money second – ESPECIALLY when you are young (this tune changes as you age, of course). I am not saying to eschew financial planning all together, but there is a fine balance to be had, especially at this age, between planning for a financial future and enjoying the time in your life when overhead is so low that you really can afford to take risks, make crazy choices, and have amazing experiences, yes…incur debt!

    Debt now could be the currency of great life experiences, just don’t get carried away.

  27. Abhishek

    Debt is a way of living, not dying though.. Debt would let you buy something for tomorrow at today’s price.. Obviously, you pay interest, but there’s inflation too.

    Debt is a way of organizing your finances for future or present needs.. Debt can work wonders, if you calculate your future cash flows appropriately.. Personally, I would not go for debt if I am not certain about my future cash flows. And given an option would surely love to fulfill my needs with my present balances. But if at all I go for it, it would be a tradeoff between “Wants” and “Compromises”..

    Read “Rich Dad, Poor Dad”.. It’s a must read, if anyone hasn’t..

  28. Minimum Wage

    My position is opposite to LB’s: I would have been much much better off if I had never gone to college. I’ve worked hard since I was ten years old and had saved up $4,000 (about $20K in today’s dollars) by the time I graduated high school. Then I blew it all on a liberal arts degree so that I could go to law school. I graduated with student loan debt and couldn’t afford to go to law school without borrowing up to my eyeballs, and I became risk-averse when I saw many others go to law school and end up with low-level or even menial jobs. So I ended up not going to law school and got a minimum wage job. All that money I saved up is long gone and I have a mountain of debt I don’t know how I’m going to overcome.


    About 2.5 years ago, I was owing 200k i.e two hundred thousand dollars in credit card debt … I almost went crazy . Minimum payments were almost 5k a month . I was making 5k a month so all my money was going to pay credit cards . My wife was working so that helped . I soon realized I would never get put of debt so I decided to declare bankruptcy but after doing a lot of research I found out that a lot of people that declare bankruptcy wind up in debt again . I decided to tackle the problem head . After thiinking I decided that I would take a 125% mortgage i.e borrow more money that my house was worth . I was able to get 125k @ 13% the payment was $1400 a month . I have since refinanced that loan to 6.6% and my house is now worth more than I owe ..
    I still owe about 45k but that is not killing me . You wont get out of debt by working 2 jobs and making payments . You have to invest the money in an asset that will grow faster than the debt . I would advise people to look for a house with equity and buy it because it will swallow you debt .
    My friend was owing about 80k and he decided to pay down his debt before buying a house . He is still paying down his debt buut he has been priced out of the kind of house he wants . I think that he should have bought a house that would have swallowed his debt ..
    Dont kill yourself just buy a house that already has equity or look for one that you can fix up and increase the equity , Then refi and pay off all your debt then sell the house if you want ..I DID IT .

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