In America, debt welchers are admired, and that’s a problem. Let me explain how adopting an attitude of not paying back your debt will lead you to less wealth and more unhappiness.

I’ve always grown up believing that taking on too much debt is a bad thing. What’s even worse is taking on debt and not paying back your lender. Whether the lender is an institution or a relative, paying back money lent you in good faith is an absolute must. They trusted you. Not paying them back is not only selfish, but highly dishonorable.

But when the worst punishment given to people who break their debt promises is a bad credit score or a garnishment of wages by the IRS, it’s not surprising that not paying off debt is becoming as common as spanakopita. Do garnished wages even count as punishment, since you’re simply paying back what’s owed? We’ve already discussed how a good credit score doesn’t really matter very much anymore!

People Who Pay Their Debt Are Fools

The more I think about it, the more it seems like people who keep on paying their debts during bad times are fools. Deep down, I think all of us who keep on paying our mortgages, student loans, and credit cards when we’re hurting for money know we are being silly since there are so many bailout programs available for those who don’t.

When my Lake Tahoe property got crushed during the financial crisis, the smart economic thing to do would have been to stop paying my mortgage. California is a non-recourse state where lenders can’t come after your other assets to be made whole if you default on your primary residence. They can if you default on a rental or vacation property. Throwing good money after a bad investment is generally not a good thing to do. But I feared humiliation.

Instead of letting my property go, I sank another $100,000 in mortgage payments over the next three years until the storm finally passed. Luckily, out of the blue, I was able to get a loan modification to help with the expense. Otherwise I would have spent even more. Today, I still own the vacation property.

Why Are Debt Welchers Admired?

The reason why debt welchers are admired is because they have the GUTS to say F&*# Y*$ to their lenders and not give a crap about what other people think of them. I’m sure every one of us who owes money has thought about not paying back our debt, especially when money becomes tight.

But most of us are too chicken shit to actually stop returning all forms of communication with our lenders. We’re too worried about our reputations, our careers, and our safety. Who wants to be in fear of opening the door one evening to a debt collector with a baseball bat?

Nobody rewards people who do what they are supposed to do. That’s like giving a trophy to someone who shows up for work on a Monday and Friday. What gets rewarded is doing what you’re not supposed to do, like not paying back your college loan or strategically defaulting on your mortgage.

I’ll prove to you why having poor financial habits are actually admired with several examples below.

People Default On Student Loans Because They Can

If it was so bad to default on your student loan, the New York Times wouldn’t publish an editorial on why those with student debt should default without a balanced rebuttal.

Lee Siegel, the writer encourages people to default because he wasn’t born wealthy. He writes,

“I have found, after some decades on this earth, that the road to character is often paved with family money and family connections, not to mention 14 percent effective tax rates on seven-figure incomes.”

Lee’s other reason for encouraging people to default on their student loans is because other people are defaulting or committing financial crimes.  

“Tax fraud, insider trading, almost criminal nepotism — these won’t knock you off the straight and narrow. But if you’re poor and miss a child-support payment, or if you’re middle class and default on your student loans, then God help you.”

There’s over $1 trillion in student loan debt outstanding, a level much larger than the amount of credit card debt owed by consumption-loving Americans. Plenty of people owe student debt, which is why plenty of people are rooting for Lee’s message! We want student loan forgiveness, and we want it now!

The New York Times, one of the most venerable media institutions in the world, is implicitly supporting student loan defaults by running this editorial without responding with a well thought out counter argument. Is this not financial irresponsibility given the next financial crisis will likely be the result of student loan debt defaults? Guess not.

Strategic Mortgage Defaulting

Carl Richards, a certified financial planner and writer for The New York Times strategically defaulted on his mortgage when he owed $200,000 more than what his home was worth in 2010. He could have kept paying the mortgage like his friends did, but he chose to let the rest of us pay his mortgage instead.

The public likes to blame banks for the housing crisis. Oh those evil banks who provided capital for thousands of people to live the American dream. What happened to blaming the people who decided not to pay their mortgages instead? If everybody paid their mortgages, there wouldn’t have been a financial crisis.

If defaulting on your mortgage was bad, why would Richards still be paid by the New York Times as a columnist, a job that very few people can get? If defaulting on your mortgage is seen as a poor financial move, why is Richards making money from a couple books he published about how to be smart about your money?

Clearly the publisher sees an opportunity and recognizes that debt welchers are an asset. Finally, if defaulting on your mortgage is so bad, why would he be invited to be a keynote speaker at a conference?

The rational answer is that defaulting on your mortgage is not considered bad. Defaulting on your mortgage can give you a unique story as a CFP who is supposed to know what he is doing with his money.

People love a good story. The key is to hang a lantern on your problems and profit from your mistakes. Even if you end up making millions after strategically defaulting, you still don’t have to pay the debt back.

Related: The Average 30-Year Fixed Mortgage Is At A Record Low

Bad Money Management Can Make You A Presidential Candidate

Sen. Marco Rubio, R-Fla is a star on the rise despite his poor money habits.

The New York Times reports,

“An analysis of his financial disclosures by Jude Boudreaux, a longtime financial planner and an adjunct professor at Loyola University New Orleans teaching personal finance, shows that Mr. Rubio earned $2.38 million from 1998 to 2008 but ended up with an estimated net worth of $53,000 (slightly more than Mr. Rubio disclosed himself). His savings rate during that period was about 2 percent.”

So where did all that money go? Well, he bought a $80,000 boat despite owing $150,000 in student loan debt and $30,000 in credit card debt. He then leased a $50,000 2015 Audi Q7, despite disclosing he had liquidated $68,000 in his pre-tax retirement account, which cost him an estimated $24,000 in taxes and penalties.

Then it was reported by the New York Times that Rubio used a Republican Party credit card for personal expenses –to cover a trip for a family reunion and to pay for stone pavers at his home in Miami. Bad money management is one thing, but using Party funds for personal use is a no-no, especially for elected officials.

It’s OK to be bad at managing money. If it weren’t, then Senator Rubio wouldn’t be Senator, and he wouldn’t be a candidate for POTUS. We know about the temptations of credit cards and buying things we can’t afford. Nobody is really going to fault you for poor financial decisions. We’ve ALL made them, most certainly including myself. The key is to just learn from our mistakes and move on.

Learning from our financial mistakes is exactly what Marco Rubio is doing. My only advice to him is to drive a less expensive car, because since he’s still in so much debt, the media will attack him relentlessly for all his toys.

Related: How Stock Markets Perform By President

Debt Welching Is Rational

If welching on debt was frowned upon, there would be greater punishment than simply getting a bad credit score or having your future wages garnished. The level of debt welching would drastically decline if we had a system where each finger would get chopped off after being more than 90 days late.

Instead, debt welchers are seen as heroes because they do what most of us dare not do, break our promises. Getting someone else to pay for our mistakes, and allowing us to reap the benefits when things go right is one of the smartest ways to build wealth if you can get away with it.

Everybody will screw up their finances at some point in their lives. And no matter how bad we screw up, there’s always forgiveness if we stay humble and try not to repeat our mistakes. We are OK with bailing each other out at least once, because we might need our own bailout some time in the future.

Related: Ranking Debt Types From Worst To Best

Recommendations For Debtors

Refinance your mortgage: Check out Credible, my favorite mortgage marketplace where prequalified lenders compete for your business. You can get competitive, real quotes in under three minutes for free. Interest are at all-time lows. Take advantage!

Manage Your Money In One Place: Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances. You can use Personal Capital to help monitor illegal use of your credit cards and other accounts with their tracking software. In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.

After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms. Definitely run your numbers to see how you’re doing. I’ve been using Personal Capital since 2012 and have seen my net worth skyrocket during this time thanks to better money management.

Updated for the new decade.

I graduated from business school in 2006 with roughly $55,000 in student loans. Although $55,000 is a lot to pay off, I was already a “debt veteran” by then. What’s another $55,000 in student loans when I was already leveraged over $1 million dollars to buy my first properties in 2003 and early 2005?

I didn’t need to take out student loans, but I decided to conduct some financial arbitrage. The maximum amount one could borrow through a Stafford Loan at the time was $18,500 a school year at an interest rate of 2.75%-4%. I took out the maximum amount at the beginning of each school year to pay for tuition while I received 100% tuition and books reimbursement at the end of each year from my company to reinvest in the markets. 2003-2006 was a time of recovery in the financial markets and I figured I could beat a 2.75%-4% annual return.

Even though the financial services industry was going through retrenchment during the time I attended business school, the S&P 500 was doing quite well (2003 +28%, 2004 +11%, 2005 +5%, 2006 +16%). Even long term CDs were yielding roughly 4% risk-free. The extra $18,500 invested in the stock markets each year did end up growing faster than the cost of debt until a year after I graduated.

I was feeling proud of myself for the financial arbitrage until the 2008-2009 massacre hit. Originally, I was planning to continue holding on to my 2.75% consolidated loans to reinvest in the market. But when the markets got rocked, the loans started feeling like a burden instead of a gift so I wrote a check and paid everything off instead. I was overly focused on making an extra $3,000-$10,000 a year on my arbitrage rather than focus on the big picture of my overall net worth. It feels better to have less debt during times of crisis, however in retrospect, it would been better to lever up even more to buy more stocks!

Debt is the opposite of generating passive income for financial independence. Debtors are helping make someone else’s financial goals a reality while digging themselves further down a dark hole. The only type of debt I like is primary mortgage debt given there’s a good chance the underlying property will appreciate in value over a long enough period and you’ve got to live somewhere. There’s never a financial return for renting. Furthermore, the tax benefits of mortgage debt under $1.1 million dollars is also a nice bonus to have.

In this article I’d like to provide a debt framework that will help you get motivated to get out of debt. But first let’s understand the why.

WHY WE GET INTO DEBT

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