Good debt. Bad debt. Is the issue really that black and white? For some people, it is, but for others the argument isn’t that cut and dried. Some people see all debt as bad and they strive to be cash only citizens. On the other end of the spectrum are people that see all debt as good and they try to leverage as much debt as they can. This group of people also includes very savvy folks that think that it would be best to make the most out of other people’s money. Investors like to do this a lot, especially in the world of forex investing. In the world of forex investing, you actually make more money when you borrow from other people on margin rather than having the biggest bankroll yourself.
Yet that doesn’t answer the question at all — is it better to have debt of some kind than no debt at all? Well, in order to answer that we would have to dig more into the subject of debt itself.
First and foremost, you should understand that debt is something that allows us to get things done. In order to obtain debt, we have to show that we’re trustworthy. The first time we try to get credit / debt, there’s a lot of due diligence that will be done by the lender of that credit / debt. They will want to make sure that you have sufficient income to not only pay them back, but to also pay for the essential things in your life. This is even more important with big debts like houses or cars. When you don’t have enough for the essentials, lenders know that you will not pay them first. Some people would, but most people are a bit more self-preserving than that. They will make sure that they have food and a roof over their heads before they’ll pay back any debts, and we can’t really say that we blame them.
However, as time passes and you pay back your debts along the time schedule that you agree upon with the lender, good things start to happen. Your credit score is established, and if you are keeping your debt to income ratio low and your debts paid off in good timing, then your credit score is going to be high. This means that you can not only get credit easier, but you will also be able to get better terms than other people. Instead of paying 23% because of bad credit, you can end up paying 4-5% or even qualifying for one of those shiny 0% interest rate things that you get in the mail. It’s just a matter of getting a good credit score and holding onto it.
Debt that allows you to do something is generally considered good debt. However, like most things in life, too much of a good thing can really get ugly! Let’s say that you want to go back to college. Do you really want to take out a lot of student loans? That depend son the job market and the type of career that you’re trying to explore. We’re big fans of higher education, but we really don’t recommend anyone go back to school for a philosophy degree hoping to make the big bucks. You’re much better off looking at what the job demand is in your general area and then going back to school to get training on that. It makes more sense, but you still need to be cautious to avoid generalizations. There are “in demand” jobs that get a lot of attention, but they might not be available in your area. The healthcare field is booming, but that doesn’t necessarily mean that it’s booming in your area at all.
There’s no reason to be afraid of debt, but you do need to plan for debt. You need to think of the next six months, the next year, and the next five years. There are a lot of things that can happen in five years. The job that you thought would never disappear could disappear, but you’re still stuck with that debt. It might seem silly to think like this, but a lot of people end up skipping over these steps and ending up in a world of trouble.
If you’re already in debt, one of the things that you have to do is stop taking on new debt. This might seem obvious, but a lot of people really think that if they just pick up some good debt, it’ll balance the scales so to speak. In order to really get out of debt, you have to work at chipping away the debts that you owe. This might mean that you get a debt professional to help you. There’s nothing wrong with that at all. You just have to make sure that you really know what you’re doing. You don’t want to end up going through everything possible, only to find that you still can’t get things done the way you want.
Break out of that cycle with solutions like debt consolidation, which can give you relief from paying the minimum payment due and never really seeing your balance go down. That’s no fun at all!