Is There Good Debt?
- Most debt, like credit card debt, is very bad for your financial well-being.
- Generally the only good debt is that taken out against something that increases in value.
- Steer clear of debt that is the result of mindless spending and accrues interest upon interest.
There’s a book that came out in 1961, Catch-22, which became a movie in 1970. You’re probably familiar with it. In fact, Art Garfunkel played a pilot in the movie. The important thing about it is the catch-22 scenario.
As the pilots completed more and more missions, they were looking forward to getting out of World War II. But their higher-ups kept adding more missions. When the pilots finished those missions, the number they had to complete to go home just kept increasing, so they could never make any real progress.
This situation always comes to mind when I think about people accumulating debt and particularly bad debt like credit card debt. You know how it goes. You’re buying this, buying that, and the balance accumulates as well as the interest. It quickly becomes interest accumulating on top of interest.
That’s definitely a catch-22 because you can’t get out of it. People end up in bankruptcy over this because it’s like a slow leak that goes on and on. It can end up driving you crazy.
So, what’s the answer? Is there such a thing as good debt, or not? Good loans, or not? Actually, there are good loans and they’re good for two reasons.
First, the item you took out a loan to buy increases in value. What could that be? The biggest one, of course, is your home, or real estate investment. You take out a loan against it and it has an appreciation aspect to it—it increases in value over time.
Second, the item you borrowed money for increases your value. An example of this is getting an education, either formal or informal. Formally, people study and get a master’s degree, PhD, an associate’s degree or some sort of technical training.
Informally, it happens when you’re involved in a variety of groups that meet together. You’re working with others to informally educate yourself about business, commerce, or many other things.
Those are the two things that make sense when it comes to debt because there’s a return on your money. It’s something that, itself, appreciates, or appreciates your personal value. That way you don’t run into a catch-22. Great movie, by the way, if you haven’t seen it. Until next time, enjoy.
Gary Klaben is in our Glenview, IL office and serves our clients who are now located all over the country. He has over 30 years of experience and is the author of Changing the Conversation, Wealth of Everything and co-author of The Business Battlefield. Whether advising his clients, mentoring his team, or coaching entrepreneurs, he is always simplifying complexity and motivating others to take the next action that’s right for them.
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