To the average person debt is seen like a gloomy cloud over one’s head that until settled will keep casting its influence on the person. This is true especially of bad debts that eat away at your freedom. But that is just one side of debt. Without debt, many individuals and businesses (even governments) wouldn’t be financially where they are today. Debt is a fundamental structure that keeps the economic wheel going.
So where did this fear of debt come from? I personally believe it’s a public misconception. We’ve all heard of individuals and businesses that got crushed due to the amount of debt they incur. These stories are exceptions and not necessarily the rule. The misconception that people have is that they think ‘having debts that eventually crush you’ is always the rule. It is not the rule, it is merely an exception.
The short answer to the title of the post is a yes and a no. Read on to find the long answer.
Types Of Debt
First we must understand the types of debt. There are a number of reasons why people take on debt; to make an invest, to make a big purchase, to start a business, to travel, to further one’s education etc. There are a myriad of reasons why. Some are beneficial in the mid to long term and some in the short term.Bad debts are the kind of debts that have little to no ROI from an economic standpoint and would not add an increase in your baseline either in the short or long term period. I took a loan and install a 6x6 jacuzzi on my front yard. Unless I'm an influencer with a huge following on social media, that jacuzzi's ROI is near zero because it wouldn't lead to any increase in my bottom line rather it'll bore a hole in it.
The second kind of debt is good debt. Good debt is the opposite of bad debt. It's the one that propels individuals and businesses into new financial heights because the potential ROI is net positive. Sometimes the ROI is near infinite as in furthering one's education.
Debts That Should Be Avoided
Bad debts are the kinds of debt that should be avoided whenever possible. It's a financial abyss that bores a hole in your pocket. Modern society tends to portray this image that one should be 'on trend' and keep up with the standard. And if one doesn't, one wouldn't be able to fit in and will be labeled 'uncool'.Given that we're social creatures, this puts immense pressure on the individual to do whatever it takes to be 'on trend' regardless of what it will cost in the long term. For me, the solution to this problem is remembering that there isn't any lasting satisfaction in being 'on trend'. It's just never enough and things just keep changing.
Debt Is Good If Used Correctly
Debt is not bad (half truth). Bad debt is bad (full truth). Using debt correctly means putting the debt into good use and focusing on improving one's current situation rather than keeping up with the Joneses.On the other hand, it also means properly managing the debt. Balancing the income and expenses. Paying on time. Often times, improper management of debt can lead to things getting out of hand.
Conclusion
The concept of generally avoiding debt is a limited perspective to have and one will be missing out on the benefits of using debt as a tool to improve one's financial situation.Bad debts should be avoided at all cost because they do nothing but retard your financial growth. However, (good) debts on the other hand are like opportunities that one should explore whenever available. All debts carry a risk but we must learn how to properly manage it and make the most out of them.
Thanks For Reading!
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