Unfortunately the saying ‘It takes money to make money’ is true
When you’re drowning in debt, worried about your income and fielding calls from debt collectors, all you want to do is get out of it. As you should. Debt is debilitating, it affects your physical and mental health, and can result in relationship problems. Getting out of bad debt should be your number one priority, and there are some great support systems and advice channels available to help you manage debilitating debt, and modify your life to fit within your new financial reality.
But debt can also be a good thing.
Wait! What? Yes, you read right. It is important to pay off your debt, stay out of debt, and save yourself from damaging emotional strain, but with smart money management and sound decision-making, good debt can actually be a sensible investment for your financial future. Good debt can put money into your pocket. Bad debt, on the other hand, takes money out of your pocket. It is important to be able to differentiate between the two types of debt, in order to leverage good debt and grow your financial worth.
‘It takes money to make money,’ may be a very difficult concept to get your head around when you’re drowning in debt or have recently (finally!) paid off your bad debt. But, realistically, in the times that we live in, being completely debt-free is not only almost impossible, it can actually create financial problems further down the road, because without debt, your credit ratings are directly impacted. Debt is linked to your ability to borrow money or pay lower insurance or interest rates. In fact, without debt, our entire economy would collapse, because the economy is based on inflation, of which debt is a contributing factor. And in business, debt is a much cheaper form of financing than equity. However, bad debt like mountains of credit card debt, will hurt your credit score – especially if you’re unable to keep up with your payments.
If you contemplate taking on good debt, remember that it must pay for something that has long-term value and increases your net worth, or helps you generate income. A mortgage debt can become one of the best assets you could hope to own and investing in your own business could end up being worth a lot more than the loan you took out to start it. Good debt should leave you better off in the long-term and not have any negative impact on your financial position.
A word of caution, though! Before taking on good debt, work out how you’re going to pay off your bad debt first. If you currently have both good and bad debt, ensure that you keep up with the repayments to ensure a good credit rating, while at the same time paying off the bad debts as quickly as possible. And at all costs, completely avoid ugly debt – the kind that comes from loan sharks or informal financiers, and keeps you anxious and awake at night.
As you work through your various debt issues, bear in mind that you didn’t get into it overnight and that it’s probably going to take some time to sort your bad debt out and convert it into good debt. So, get to work on eliminating bad debt like high-interest credit cards and loans for liabilities as soon as possible, while continuing to increase your financial education and mastering the fundamentals of good debt. By following some essential guidelines when it comes to managing both good and bad debt, things can get back to being okay again – and being in (good) debt may even help you achieve some of your important life goals, and find your future happiness and peace.