Most of us grow up thinking that debt is a bad thing. Not owing money to anybody is a way to preserve your freedom and to keep you from being crushed by the weight of future obligations. It's understandable that many could think this way and, indeed, may have learned some valuable life lessons themselves about the potential risks associated with borrowing money.
But the truth is that not all debt is bad. There can be very good reasons for borrowing money, especially if it is a wise investment that helps propel you forward in life. Borrowing is sometimes also very necessary, as in the example of taking out a mortgage for your house. If the mortgage is affordable, you can get comfort in owning your own home rather than having to pay rent each month. There are also a couple of other great examples when debt can be positive. Let’s cover some of them.
Getting the Education You Need to Get Ahead
Debt can be good when you are investing in yourself so you can get ahead in life. One example of this is taking out a student loan so you can pay for college. If you have a university degree, you could qualify for better and higher paying jobs throughout the course of your career. The money you invest in college and in your future will pay dividends all along the way. The pay differential between those with a high school diploma and those with a college degree is substantial. By getting a student loan, you'll be able to get the degree you need to advance further in life.
Investing in Your Business Venture
Another area where debt can be good is when the money is used to invest in your business or another income generating venture. This is money that will be used to create revenue. Ideally, you'll be able to pay the loan off quickly from the profits created by the new business or enterprise. Borrowing money for this purpose can help jumpstart a potential venture and get things up and running quickly. In a way, this is another form of investing in yourself. With a short-term loan you can help create your new company and then reap the benefits of its success.
Bad Debt and How It Can Drain Your Resources
Unlike good borrowing, which is helping create a more robust future and increase your revenues or earning power, bad debt simply takes from you. When you use a credit card or a similar line of credit to pay for a big-ticket impulse purchase, you are strapping yourself into a never ending cycle of high interest payments and revolving charges that can make it hard to get out of credit card debt easily. If you want to treat yourself to a new TV or a once-in-a-lifetime vacation, put some money aside each month and pay for those items from that account. While these would be nice to have, it's not worth borrowing for them when they don't create revenue, and they drain your monthly budget instead.