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.