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Is Debt always a bad thing?





In a word... No.

I think the first thing thing to understand about debt is that it is an investment. You are hoping the money you access affords you a better quality of life. Whether you are borrowing to pay the electric bill or to buy a new business, you are hoping it opens up a new path.

New paths are unknown so here are our Safety checks you can use when considering new debt.

- Why would you hold this debt? What are you looking to get out of this?

Be sure you are buying something to improve your life rather than to impress culture and society.

- Understand your return on investment.

I took out student loans as a way into the job market but school was much less expensive then. After supplementing with scholorships and grants, the loans I took out totalled half of my starting salary giving me a very healthy return on my money.

- Will the benefit outlast the loan?

Are you buying a depreciable luxury asset like a boat? Are you upgrading a car?

What would happen if you waited a year and put some extra cash towards that loan or waited even a little longer and bought it for cash?

- Real Estate...

Does the math behind the price of your apartment or home make sense?

Prices for real estate are supported by the salaries of the people who own and who will want to own in the area. Are they over-stretched or cheap for the incoming population?

- New Businesses

If you need to raise money for a business, debt can help you avoid taking on partners. Your return on your business should be expected to be higher than the interest rate on the loan.

- Debt to build credit

The local loan officer is a casualty of technology. Without a relationship, lenders rely on generic things like credit scores to give them a profile of their potential borrower. Having a good credit score gives you access to less expensive money in times of need or opportunity.

Are there other ways to achieve what you are looking to get out fo this?

Can you work part time while attending school part time?

Can you live in a smaller house or take on a room mate?

Is the boat a necessity?

Can you trim your budget more to put more away for savings?

Debt to avoid...

Revolving credit, credit cards and consolidation loans often carry high rates and lack discipline and accountability needed to change habits.

Debt always feels uncomfortable to me.

I paid off my student loans despite the low interest rate because the bill mentally distracted me each month. I have leaned on debt to get me from one place to another and in hard times to make it over a bridge. There is not so much good debt as good decisions.

Respect it for the good it can bring and destruction it can cause if you do not.

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