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How Debt Can Be Good for You

Written by Neal Frankle - 4 Comments

Is debt good? Yes… At times it can even be great for you.

As a general rule, I encourage you to avoid debt like the plague. I stand by that in the vast majority of cases, but there are some situations where you really benefit by having debt. For example, as long as you know how and when you’re going to pay it off, have the lowest interest rate possible, and no for certain how and when you will pay it off, debt can be a useful tool.

Here are five cases where having debt can actually pay off:

1. Low paying jobs

You read that right. It could be a brilliant move to take a low paying job – if you’re smart about it. You might have a great opportunity to take a great job that has tons of opportunity in the future. Just because the pay is low to start doesn’t mean you have a dead-end job. Even if you have to take on some debt to finance your lifestyle during this time, it could be a smart move.

Of course this assumes that you’re living a very Spartan life and that you slash your expenses to the bone.

The best example of this is starting your own business. When I launched mine, I had zero salary, and it took awhile to ramp up. Fortunately, it turned out to be a great investment in my future. Just the same, my wife and I tightened our belts big time when I started the company, and we had a spending plan from day one.

2. Education

Depending on your career path, you’ll probably need some education. I personally feel very strongly that you can get a great college education without spending big money. After careful consideration, you might also conclude that a traditional college education isn’t for you, and that you can save time and money by attending a private career college to get vocational skills.

In either case, when you go to school, you will incur some expenses and your immediate income will be reduced. As long as you slash your expenses during that time and make sure you get the education you need at the least possible cost, there’s nothing wrong with a little debt. Again, I’ll only give you my blessing if you do this mindfully, and with a well-defined plan as to when and how you’ll pay it back. I’ve seen too many people in their 40s and 50s still carrying student loan debt that they incurred back when they went to graduate school. That’s not a path to financial freedom.

3. Mortgage

Many people argue that it’s cheaper to rent than to own a home. As an added benefit, when you rent, you have no mortgage debt. It sometimes seems like the renters are right. For example, just look at what’s happened to homeowners over the last several years. But at the same time, most of the people I know have done quite well owning real estate – despite the recent collapse of the real estate market.

Of course, this pre-supposes that you are able to make your payments comfortably, and that you are in it for the long-run.

4. Investments

I do not recommend that you take on debt to invest in the stock market. Doing so is a high-risk maneuver, and you’re likely to get burned. But you might have an opportunity to invest in something like a small business and, if the only way to do so would require you taking a loan, it could still be a smart move. This includes investments related to side businesses or weekend jobs. Let’s say that you decide it’s time to start being self-employed. If it costs you $4000 to buy a truck that will allow you to earn $1000 a month in your weekend catering business, you’re a smart cookie for borrowing that $4,000.

5. Emergencies

I don’t need to tell you this, but if you have a medical or other true emergency, you may have no choice but to borrow money. Even if you have a healthy balance in your savings account, sometimes “life happens.” You shouldn’t feel bad about this. What you should do is make sure that you pay as little as possible for that debt, and set up a budget to rebuild (and enlarge) your emergency fund down the line. This way, when the next emergency happens, you won’t be forced into debt.

Closing thoughts

Notice that the following situations that don’t appear on the list: travel, fancy cars, lifestyle enhancements, etc. While debt can be a handy if used properly, it can really drag you down if you use it to supplement your lifestyle. As I said above, whenever you borrow money, be sure to pay as little interest as possible, and the least interest possible and make sure you have a plan to pay the debt off as quickly as possible.

What about you? Do you have a story where debt turned out to be good for you?

Published on March 31st, 2011 - 4 Comments
Filed under: Debt Reduction

About the author: is a Certified Financial Planner in Los Angeles whose goal is to help people improve their finances and find balance in life. He covers these topics at his personal blog Wealth Pilgrim.

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4 Responses to “How Debt Can Be Good for You”

  1. 1
    KDB Says:

    I guess this all goes back to the “good debt vs bad debt” type of debate. Sure, debt that helps you invest in your future can be good (mortgage, small business) but most debt isn’t good, at least financially. And even with “good debt” you need to be careful, because after a while it can turn bad.

  2. 2
    kh Says:

    It’s REALLY good to see a PF blogger who admits that sometimes debt is not the anti-christ. I get really tired of seeing PF bloggers who blog all the time about how debt of any kind is evil, awful, terrible, and will lead to eternal damnation, drinking the blood of the innocent, and warts besides.

    Nice to see a balance and some common sense being applid to real life!

  3. 3
    Neal Says:

    Thanks KH.

    To be honest, I am typically one of those PF bloggers who attacks debt but I realized after speaking to a few clients that it really made a lot of sense to have debt in certain circumstances.

    Thanks again for your kind words.

  4. 4
    John Says:

    I come from a farming family but I currently work in manufacturing. It makes a lot of sense for me to buy farmland near the home farm, then rent it to my father or brother. Within the next 10 years I will probably buy farmland and borrow money to do it. With land prices making steady increases and occasionally larger jumps, it would take me 20-30 years to save enough money to buy any real acreage with cash.

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