C’mon, folks, call debt what it is — loathsome

There is power in words.

I cringe when I hear financial professionals argue there is “good debt” and “bad debt.” They typically put mortgages and student debt into a category of virtuousness.

On the other hand, carrying credit-card balances from month to month is bad, they advise.

People often to say to me, “I don’t have any debt.” But then they quickly add, “except for my mortgage.”

The division of debt into good versus bad contributed to the housing crisis that became the trigger for the Great Recession. Americans were led to believe that mortgages, no matter how high, exempted them from the dangers of debt.

And it has been the same rhetoric about student loans, which are described as a good investment — that has pushed families to borrow $1.3 trillion to pay for education.

So it was with much interest I read a new report by the Pew Charitable Trusts, which found that 80 percent of Americans have some form of debt. But most of those folks — 69 percent — would prefer not to have the burden.

Pew explored how four generations of Americans have been affected by debt. The report, “The Complex Story of American Debt,” provides insights into the good versus bad debt discourse.

“One of the biggest shifts in American families’ balance sheets over the past 30 years has been the growing use of credit and households’ subsequent indebtedness,” the report says. “In the years leading up to the Great Recession, the average household at the middle of the wealth ladder more than doubled its mortgage debt. Although Americans’ debt has decreased since then, housing — which still is the largest liability for most households — and other debt remain higher than they were in the 1990s, and student loan obligations have continued to grow.”

Here’s a key finding from the report. The jump in debt hasn’t been met with an increase in household income. Debt, of course can become particularly burdensome for low-income families. In the aftermath of the recession, liabilities for low-income families grew far faster than their income. In 2007, their debt was equal to just one-fifth of their income. It had ballooned to half by 2013.

Erin Currier, project director of financial security and mobility at Pew Charitable Trusts, said the report specifically examines “how Americans’ growing indebtedness connects to families’ financial security, their attitudes toward it, and how it relates to their overall financial health.”

As part of the survey, everyone was asked, “What comes closest to your feelings about debt?” Here were the choices:

No debt is worth it to me.

Some debt is a necessity, but I would prefer not to have it.

I am OK taking on the debt that I need.

How would you answer?

I would have added a fourth choice. “I hate debt and so use it begrudgingly.”

It might appear that my answer is similar to “some debt is necessary.” But as I said, there is power in the words we use or the things we tell ourselves. So here’s the distinction. I use debt. I’ve used it to buy homes. I use credit cards. I used to rely on debt to buy cars. But my internal dialogue is one of loathing when it comes to debt. That in turn keeps me from accumulating amounts that are unsustainable for me and my family.

This summer I saw Disney’s animated movie “Inside Out,” which was a brilliant look at the internal conversations we have with ourselves. The film largely takes place in the mind of 11-year-old Riley, whose emotions are personified as Joy, Sadness, Fear, Anger and Disgust.

At the start of the movie, Joy is the dominant emotion often trying to coach Sadness to always see the positive things in life. Eventually we see how Sadness plays an important role in keeping Riley balanced. Sometimes it’s OK to be sad.

Now let’s jump back to indebtedness. Our inside conversations should include not just the joy of being able to buy a home or go to college but also sadness, fear, anger and disgust when debt is placed on our balance sheets.

In the Pew report, the researchers point out that “sustainable debt” allows families to invest in their futures without straining their present-day budgets, which in turn helps families build assets.

“We used the term sustainable debt because we can see from the data how complex this story is, and that for many people, certain forms of debt can be wealth building,” Currier said.

So let’s change the debt dialogue. When we talk out loud and in our heads, sadness, fear, anger and disgust should be powerful motivators to keep debt levels in “sustainable” territory.