We’re usually led to believe that debt is terrible. Carrying a large load of credit card debt didn’t happen a few generations ago. Older individuals might say, “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 sometimes debt can be good.
Check out some good reasons for going into debt:
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- A great investment opportunity. An investment opportunity could be in real estate, the stock market, a business, or another prospect. Regardless of the investment type, if you can earn more than you’re spending, debt could be profitable in the long run.
- For example, if you can borrow money at 5% and invest it for a 15% to 20% return, that would be a good reason to take on some debt.
- 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, this is another instance where borrowing money can make you wealthier in the long run.
- If your mortgage payments are the same as, or less than, your current rent payments, a home loan could be considered “good debt.
- A great investment opportunity. An investment opportunity could be in real estate, the stock market, a business, or another prospect. Regardless of the investment type, if you can earn more than you’re spending, debt could be profitable in the long run.
- Starting or growing a business. This is another example where you’d borrow money to make more than you would pay back on the debt.
- Education. Borrowing money for 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 paying it all off takes them decades.
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- You’ll need a lot of training to be a doctor, lawyer, or engineer. Those years you’re spending in college can be pretty expensive.
- Going into debt can be good if it allows you to get into a lucrative profession.
- If you’ll 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 to live on.
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- 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.
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- 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 of debt.
People who tell you that going into debt is terrible 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 to pay your monthly bills or running up credit card balances to buy a bunch of things you don’t need, this is considered “bad debt.” But, if you’re borrowing money for an investment, that can be considered “good debt.” Debt can be helpful if you’re using it to make a profit and come out ahead.