We’re usually led to believe that debt is bad. Carrying a large load of credit card debt is something that just didn’t happen a few generations ago. Older individuals might say something like, “If you can’t afford it, don’t buy it.” That’s usually good advice. It isn’t a good idea to carry a lot of credit card debt, but there are times when debt can be a good thing.
Check out some good reasons for going into debt:
- A great investment opportunity. An investment opportunity could be in real estate, the stock market, a business, or some other prospect. Regardless of the type of investment, if you have a chance to earn more than you’re spending, debt could be profitable in the long run.
- For example, if you’re able to borrow money at 5% and invest it for a 15% to 20% return, that would be a good reason to take on some debt.
2. Buying a house. Most people won’t ever be able to save enough money to buy a house without borrowing some money. Because a house will usually appreciate in value, this is another instance where borrowing money can actually make you wealthier in the long run.
- If your mortgage payments will be the same as, or less than your current rent payments, a home loan could definitely be considered “good debt.”
3. Starting or growing a business. This is another example where you’d be borrowing money in an effort to make more money than you would payback on the debt.
4. Education. Borrowing money to go to college can be a good reason for going into debt. However, be cautious about taking on too much debt for college. Many students borrow carelessly, and it takes them decades to pay it all off.
- If you want to be a doctor, lawyer, or engineer you’ll need quite a bit of training. Those years you’re spending in college can be quite expensive.
- Going into debt can be a good thing if it allows you to get into a lucrative profession.
- If you’re going to borrow money to go to school, ensure that your chosen profession is in demand and that you can earn enough to pay off your loans and still have enough left over to live on.
5. Using a lower interest rate loan to pay off higher interest rate credit cards. If you have credit cards with interest rates from 18% to 22% but you could get a home equity line of credit at 6%, taking on that low-interest loan could be considered good debt.
- Just ensure that once you pay off those high balances on your credit cards, you don’t start charging things and running them up again. Use the low interest rate loan to help get out and stay out of debt.
People who tell you that going into debt is bad are genuinely trying to be helpful. However, there are times when going into debt can be a good thing.
If you’re going into debt just to pay your monthly bills or if you’re running up credit card balances to buy a bunch of things you don’t really need, this is considered “bad debt.” But, if you’re borrowing money for an investment, that can be considered “good debt.” Debt can actually be helpful as long as you’re using it to make a profit and come out ahead.