When is Debt a Good Thing?

Nov 22

When is Debt a Good Thing?

If you’re the kind of person that looks for money saving tips and ideas wherever you can find them, the idea of taking on debt may seem like a generally bad idea and this is, of course, the correct view. All debt incurs interest and is generally to be avoided. But debt can be a very good thing when used correctly.

But first things first – if you can avoid debt, it’s generally a good idea. The exceptions to this are when debt is absolutely necessary to deal with an emergency of some kind, and when debt is financially advantageous.

So when is debt financially advantageous?

First off, mortgage debt is generally a smart move, financially, given sufficient time. In other words, property values generally rise more quickly than your interest rate and you tend to win out over time – particularly as you need somewhere to live anyway!

Of course, in the current economic climate as property prices drag their heels; this may not seem like sound advice. That’s because property prices streaked ahead of earnings and, therefore, people’s ability to maintain mortgage payments. But given a long enough time period, mortgage debt is usually a good thing as long as you’re confident in your ability to keep up with the payments.

Student debts are also a wise move in general. They’re available at very favourable rates over a very long term and are usually a necessary investment to tide you over as you prepare for a long term career – which will usually be a lucrative one. In other words, the student debt is actually an investment in yourself which should pay off handsomely in the longer term. Just remember not to load it too heavily by living beyond your means whilst you study.

A business loan is also “good” debt in most cases as you believe in your ability to create good profits that will far outstrip your payments on the many different types of loan available in this area.

And finally, if you’re already in debt too deeply, a debt consolidation loan or one of the many other debt relief options available to you may be “better debt” in that you can manage your finances more effectively and reduce interest payments. So debt can be good – just use it wisely