Why Taking On Debt Isn’t Always Bad

A hole in a United States $100 bill revealing the word “debt”.

People usually think of debt as something to avoid due to the notion that it’s inherently bad. However, this is not always true because depending on the situation, taking on debt can actually be beneficial to the borrower, as it can help them reach important goals that wouldn’t be possible otherwise. Obviously, when ignored, debt can come back to bite you and potentially harm your well-being. This is precisely why it’s important to understand the risks of debt while also acknowledging that not all debt is harmful. There are different types of debt, and how someone uses it makes a big difference. High interest, unpaid bills, and financial stress are among the first things that come to mind when thinking about debt, but in reality, many people and companies benefit greatly from debt. When used in a smart and controlled way, debt helps them do things like grow a business, get an education, or buy a house.

When looking at debt, it can be classified as one of two types: good debt and bad debt. The difference between the two isn’t purely interest rates or how predatory it is. Instead, it’s also about the purpose behind the debt and how much value it brings over time. When a person uses debt to improve their future, financial security, or overall living standards, they have good debt. Good debt, which can include student loans, business loans, or home mortgages, helps the person build long-term value and often lead to greater income, higher value, or better living conditions. For example, taking out a student loan to go to college can increase future job opportunities, while taking out a home mortgage to buy a house can lead to better living conditions and financial security. On the other hand, bad debt often includes things like credit card debt used to buy items that lose value quickly, such as clothes or electronics. These types of debt don’t lead to future gains and often come with high interest rates.

One reason debt isn’t always bad is that it helps people buy things they can’t afford upfront. A good example is a home mortgage because most people don’t have enough savings to buy a house outright. So, they borrow money from a bank and pay it back over time. This lets people live in their own home while they pay it off gradually. If they waited until they saved the full price of a house, it could take decades. Meanwhile, home prices would likely go up as well, and they would fall even further behind. Mortgage debt also tends to have lower interest rates than other types of borrowing, which makes it more manageable, and considering the fact that house prices typically go up over time, the asset’s appreciation could outweigh the interest payments, leading to a net financial gain in addition to the better living conditions that come with the house.

Student loans are another example of how debt can be useful because it allows people to pursue a higher education, which often leads to better jobs and higher income over time. Without student loans, many people wouldn’t be able to afford college or technical training. While it’s true that some student loans are hard to pay off, many people do manage their payments and see long-term benefits from their education. Rather than straight up quitting higher education, it’s important to borrow a reasonable amount that you know you can pay back, get as much aid or scholarships as possible, choose a useful degree that will lead to more lucrative job opportunities, and understand the payment terms before taking out the loan.

A graph categorizing small businesses by the amount of outstanding debt they have.

Debts aren’t just a beneficial tool on the individual level. In fact, most businesses also use debt in ways that help them grow. When a business wants to expand, it may not have enough cash on hand to build new locations, hire more workers, or buy better equipment, so by taking out a business loan, they can make those things possible. If the business earns more money as a result, the debt ends up being worth it. Companies also use a strategy called “leveraging,” where they borrow money to invest in opportunities that could bring in more profit. If done carefully, this helps a business grow faster than it would by only using its own savings.

Governments use debt too. By issuing bonds, national governments borrow money to help fund things like roads, public schools, and healthcare. These services are important for society and help support a stable economy, and through borrowing, governments can provide services now and pay over time. Just like with individuals or businesses, it’s important to make sure the debt doesn’t grow faster than the ability to pay it back. When debt is used for useful purposes, it will lead to stronger communities and better public services.

Credit cards can also be a form of debt that helps when used carefully. Some people use credit cards to buy items during emergencies or to take advantage of rewards programs. When the balance is paid off each month, there’s usually no interest charged, and as mentioned before, most credit cards have rewards programs. This means that if you are careful, you can not only borrow money free of charge, you can also get free benefits from it! Problems often begin when people carry a balance and let interest add up. In that case, the debt can grow quickly. The core principles behind credit cards aren’t bad; it’s the misuse that causes problems.

Adding on, debt also helps spread costs over time, which makes big purchases more realistic. For example, cars are expensive, and most people wouldn’t be able to buy one without a loan. That is where auto loans come into play, which help people get access to transportation without waiting years to save up. Being able to get to work or school improves a person’s life and can increase income. Of course, it’s important to shop for a good loan with fair terms, but that doesn’t mean the debt itself is bad. Again, it’s just a tool that helps people with their needs.

For sudden expenses like medical bills and home repairs, debt can help solve them immediately. If the loan terms are fair and the borrower has a plan to pay it back, this kind of debt often solves these short-term problems and leads to better outcomes in the long run. Unexpected problems are a part of life, and without borrowing, many people won’t be able to fix a broken furnace or cover a surgery. In those moments, access to credit becomes necessary, not optional.

All along, we’ve discussed the various benefits of debt, but debt can also come with major pitfalls. Debt becomes harmful when you take one out without a clear purpose or when it grows faster than your income. That’s why it’s important to have a plan before borrowing and not blindly take out an unnecessary loan just because a bank is offering it. This means knowing how much is needed, what the payments will look like, and whether you will be able to pay it off in the future. If those things are in place, then borrowing can be a smart choice. It's not always the size of the debt that matters, but whether it’s part of a responsible plan.

People forget that even wealthy individuals and large corporations hold debt. They don’t avoid borrowing just because they have money. As a matter of fact, most companies borrow more as they grow because it lets them do more with the resources they have. It frees up cash for other uses and allows them to take advantage of new opportunities. When large companies borrow money at low interest rates, they often invest that money in projects that lead to growth and profit, which typically far outweigh the interest payments on the debt.

To wrap up, modern society has spread the idea that debt is bad and will somehow ruin your life, but that’s not true at all. When it’s used for useful purposes like education, housing, business growth, or public services, debt often brings value over time. It allows people to spread large costs into smaller payments, build credit, and take advantage of time-sensitive opportunities. You just have to make sure that the debt will lead to something that will bring more benefits in the future, benefits that outweigh the drawbacks of taking out the debt. Debt will only “ruin your life” and negatively impact you if it’s ignored, used unnecessarily, or doesn’t bring value over time.