Is All Debt Bad?

We're all trying to pay off debt. It's often a part of life that we cannot avoid. But is it so terrible to have debt? Should we avoid all loans and credit cards? Should we pay cash for everything, even those huge purchases that could take ten or twenty years to save for? Not necessarily. Let's take a look at the positives and negatives behind our debts.

The Negatives of Debt

Obviously, we all know the negatives of debt: A person who owes too much money to too many sources can get behind on payments rather quickly. Someone who takes on loans and makes little or no progress toward repayment could easily pay tens of thousands in interest and never see the principal decrease. Debt can also be emotionally straining, making the debtor feel crushed beneath struggling finances.

There can also be other problems with debt that aren't as obvious. It can impact your relationships, making it difficult to work through issues within marriage, friendships and extended family. It can also be difficult to ignore the call of credit; in other words, you could make purchases you cannot truly afford, simply because credit is available.

But debt can be positive, when credit is used in a responsible way. Let's look at how credit can be helpful, not harmful, in life.

The Positives of Debt

Responsibly taking on loans and other debts can help you get ahead. When you take on debts, make payments on time, and pay off your loans over time, your credit score will increase. And an increased credit score makes it possible to purchase large items, like a house, later in life.

Debt can also help you land that job. Many employers now pull your credit score when you apply for a job. They assume that if you have been responsibly repaying debts, you will also be a responsible employee.

Taking on loans can also help you reach life goals, when used responsibly. That car you need? A loan could help you afford a dependable ride. Home ownership may also be possible earlier with a loan; saving cash for such a huge purchase could take decades.

Debt Responsibilities

Although debt can be either positive or negative, it is possible to help sway your debts in your favor. All by considering the impact each debt will have on your life. This means that every time you think about taking out a credit card, charging a purchase, buying a car and purchasing a home, you should weigh the impact of each on your day-to-day finances. Can you afford the payments? Can you make more than the minimum payments on credit cards?

Taking the time to assess the impact of each debt can help you decide if the purchase is in your best interest – and help you stay on a path toward positive debt rather than negative debt.

MomVesting readers: weigh in with your thoughts on the positives and negatives of debt!

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Anonymous's picture

AverageJoe wrote:

Wed, 08/15/2012 - 00:10 Comment #: 1

While I think that all debt is bad, there are degrees of everything, right? Taking on strategic debt helps businesses grow very quickly. By thinking of yourself as a business, you can make decisions with debt that help you grow your net worth instead of ending up in bankruptcy court!

Christa Palm's picture

Christa Palm wrote:

Mon, 09/03/2012 - 17:41 Comment #: 2

True, Joe -- debt can be helpful to businesses and individuals, if handled well.

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