When Debt Can Serve You

If you’ve ever read TFC on a regular basis, it’s likely you already know what my stance on debt is, and it can be summed up in one word: hatred. It’s true I hate debt, despise borrowing, and abhor interest, and that isn’t going to change, for me anyway. But while it sounds well and good to have no debt and be financially secure, many people utilize debt to their advantage everyday.

I accept the fact that by not borrowing I may miss an opportunity or I may be unable to capitalize on said opportunity as much if I had borrowed money to take advantage of it. Most people hate debt because it takes the form of so called “bad debt.” This debt is the charge to your credit card for new shoes that blew you over budget or the trip to Tahiti you decided to spend on now and worry about it later. In these cases neither of those purchases is going to work for you,  just against you.

Some loans, however, have the ability to benefit you in the long run. You borrow now to take an opportunity and build on it for a prosperous future. Take, for example, a company called ARF, who specializes in business loans that bridge the gap between traditional bank financing and other options like say, taking on a partner. In this case you are provided the opportunity to gather capital to start your business. If the business succeeds, taking the loan will have worked to your benefit. Thus, good debt.

Of course it’s never an easy decision to pull the trigger because there’s risk involved, here. If you start a business and the business fails, you still have to pay that loan back at the end of the day. Understand your own appetite for risk and how deeply leveraged you are willing to be (in my case not at all). You can profit one way or the other.