Debt has a negative connotation in the eyes of millions of Americans. Even as many low and middle-income households depend on different debts to survive, there is still a lot of shame attached to debt. Most people associate debt with a foreclosure, bankruptcy declarations, and debt collections, but this is not always the case.
Instances When Debt Can Help Your Finances
Generally speaking, debt has two categories; good and bad. Good debt is sensible when weighed against risk and cost; bad debt, however, is high interest and, in most cases, leaves borrowers struggling to keep up with repayments. There are instances where debt can pay off and improve your financial standing. Let us look at some of them below.
1. Improve Financial Outcome
For some people, debt can be an investment for their future outcome. Student loans, business investments, and mortgages are some examples of good debts, but you need to assess the risk and reward value. Student loans can turn a college degree into a profitable income. Additionally, if adding to your investments puts you in a position to earn more, considering borrowing the money is a good idea.
When most people think about owning a home or property, only a few can afford to make the full payment; however, through mortgages, one can own a valuable asset that will be worth more after repayment.
2. Efficient Money Management
The financial hole most people find themselves in can always be attributed to poor money management. Being in debt trains you to regulate your spending and make timely payments to clear the debt. Out of habit, staying on top of debt repayments can help you develop money management skills. A skill you can employ in other aspects, we can say there is much we can learn through debt.
3. Improve Credit Score
Did you know that most money lenders require a credit history before offering you a substantial loan? Through this, they can assess your creditworthiness and determine how well you manage debt. Building your credit score requires you to take out a loan and responsibly make your payments. Over time, you can create a solid credit history that showcases your borrowing portfolio.
In Closing
As seen above, not all debt is ‘bad’ debt. After all, the fact that some of the biggest successful companies have been built on debt should count for something. Manageable debts can pay off if the borrower properly analyzes that they can productively benefit from it. While valid, the fear of debt should not deter you from taking out sensible loans that can potentially better your finances.