5 Reasons Why Debt is Good
Debt is good. Many financial experts might try to tell you that you should get out of debt as soon as possible, but did you know that your debt can help you build your credit score? And did you know that some debt can actually help you get a higher paying job? When used correctly and wisely, debt can help you gain the financial freedom you seek. Let’s look at a few reasons why debt can be helpful in your life:
1. College Education: Getting a college education can be expensive. Most people can’t afford to pay for their tuition, rent, books, and food each semester. Yet, investing in higher education can help you qualify for a better-paying job after graduation. People with higher education are more likely to have good-paying jobs and have an easier time finding a new job. An investment into your college education will likely pay for itself within a few years.
However, not all majors are created equal. Do your research and make sure you’re investing your time and money into a lucrative career. You don’t want to graduate from college with an enormous debt and no career options.
2. Start Saving For Retirement: Some financial experts may tell you that you need to put all of your excess money towards paying off debt. They’ll tell you that “if you will live like no one else, later you can live like no one else.”* While it’s good to pay off debt with high interest as soon as possible, you should also start saving for retirement now rather than later.
If your work offers an employer match on your 401k, you should absolutely take advantage of that. It’s free money that will help you out more in the long run. Invest at least the minimal amount required to get the full employer match on your 401k and then put the rest towards paying off high-interest debt.
3. Low-Interest Debt: If you have a loan with high interest, you should strive to pay that off as quick as you can. However, if you have a loan that has little to no interest, it might be better to spend your money on investments rather than focusing solely on paying off the debt. You should pay the minimum amount due each month on your loan and then spend whatever excess money you have on investments like stock, bonds, precious metal, or real estate. By doing so, the return on investment will be much greater in the end.
4. Business Investment: You’ve likely heard the phrase, “You have to spend money to make money.”** If you have a good business idea and have the research and data to back up your plan, it’s often better to take out a loan, rather than wait until you have the necessary amount needed. It’s better to start your business now and use the excess income to pay off your debt than to wait years and years until you’ve scrimped and saved enough to pay for it, which may never happen.
5. Build Your Credit Score: Did you know that having debt can help you build a strong credit score? If you owe less than 20% of your available credit and pay at least the minimum on it each month, you will build a strong credit score. Making payments on time each month shows that you’re responsible and banks will be more willing to lend you a loan with good interest rates if you ever need one.
Today, about 80 percent of Americans are currently in debt. For most people, debt is simply a part of life. It can either be good or bad, depending on how you use it. Ideally, no one would ever have to be in debt. But, very few people can afford to pay for everything in cash. So, be wise with your finances and choose your debt wisely. The right kind of debt can help you achieve financial independence and live the way you want to live right now.
* Source: Dave Ramsey
** Source: Titus Maccius Plautus