Many of us grew up with a morbid fear of debt. We were all conditioned to think that all debts are bad and told stories of people who got into too much debt and ruined their lives.
So, typically, we avoided debts or shy away from taking on more debts we think we can manage.
However, for some people, debt is a way of life. It’s the instrument with which they pay for about everything, including buying properties, cars, and their lifestyle to small daily purchases like getting gasoline or even buying a chewing gum.
The difference is that these latter set of people understand the other side of debt. While there’s bad debt, which is taking beyond your capacity to repay in the short or long term and therefore getting into all sorts of trouble; there’s also good debt.
In simple terms, a good debt is one that can help you make more money. With good debt, you can seize favourable investment opportunities and indices and put the money in profitable asset with promise of a good yield.
Therefore, with good debt you can achieve secure your financial future and achieve your goals faster, than aiming to be debt-free but with no income potentials in the foreseeable future. The trick is to understand when and how to use debt in a productive way.
Here are four examples of how to put a debt into good use and increase your earning potentials:
- Getting a student loan
With a student loan, you will be able to pay for your tuition fees, earn a degree and become a graduate. That automatically increases your earning value as a graduate is typically paid better than a non-graduate. And even more importantly, the interest rate on a student loan is comparatively low, and you only have to pay back the loan when you’ve started earning a certain amount.
- Buying a home
A mortgage is another example of a good debt, as it helps you own a home on a credit which is conveniently spread and paid back over a long period. After the debt is settled, the home becomes a good asset to the owner and the value increases over time.
- Small business investment
A good debt invested in a well profitable business with strategic blueprint will earn good yield in the long term that not only pays off the debt, but also sustains the business and provide employment to others.
- Car purchase
Taking out a loan to enhance your mobility to and from your workplace and consequently your productivity and earning level is another example of when a debt can be good and a wise thing to do. Be sure to use an online calculator to make sure you get the best deal possible, though.
Written by Elizabeth Hill