If this was the official definition of debt it would then be obvious to people that by using debt you are likely getting less now than you could have had later in exchange for taking instant gratification today. This therefore affects your opportunity to create wealth. I do not believe that the majority of people appreciate this when they go into debt to buy something. My definition also tells you this is for 2 reasons:
1. Interest charges. Buy it now without the means to pay for it up front and the end result is that each loan repayment being made to repay the debt is going to include a principle portion, which will eventually cover the original purchase price, plus an interest charge. If you instead chose to save what would have been the regular repayment amount until you have saved up enough to pay cash then two phenomenon occur:
- You will save the amount needed for the purchase faster than the equivalent loan will be repaid because what would have been the interest portion is adding to your savings.
- If you saved until what would have been the last loan repayment day then you will end up with more cash than the original purchase price, again because of the interest portion.
It’s important to note that these statements are based on the assumption that the purchase does not rise in price at a rate higher than the interest charge. If this was the case then you would also have to include the opportunity cost (including considering the risk of that other opportunity) of deploying the debt repayment s elsewhere. If after this calculation the price was still rising at a faster rate then the debt may actually help with wealth creation while also giving instant gratification.