financial planning

Is Debt Really That Bad?

Is it bad to have debt? Should you pay off your debt early? What about credit cards? These are all questions to consider regarding your personal and business finances. Let’s take a look at the good and bad.

If you view debt as a financial tool to help you to achieve your goals, then debt is a good thing. Some benefits of debt:

  • Virtually all homeowners take out a mortgage when purchasing their first home; otherwise they most likely would not be able to purchase a home.
  • A loan for your business may help you to expand your business to help it grow, such as an equipment loan or a line of credit to use during lean times.
  • By using debt it may help you to conserve your cash so you do not have to deplete your savings to purchase a vehicle, for example.

Now, the ugly side of debt:

  • If the interest rate of your debt is very high, then you may end up paying much more than the original loan balance. This may be true with credit cards.
  • Debt payments that are too high compared to your income will put a strain on your finances.
  • If your income goes down for an extended period of time, while having a lot of debt, may result in bankruptcy, foreclosure, and a poor credit score.