An Overview of Good Debt

The word “debt” generally has negative connotations and understandably so. Debt’s adverse impacts are extremely well-documented; it can also take years or even decades before people are able to escape its clutches. Individuals who go into debt at very young ages can often faceĀ ruined financial futures ruined and poverty. For these reasons and more, debt is overwhelmingly viewed as something to be avoided at all costs.

What Qualifies as Good Debt?

The concept of “good debt” remains highly debatable. There are many people who view debt, in any form, as negative and something to steer clear of. However, various financial experts do believe that certain types of debt can, in fact, qualify as “good debt.”

Higher Education

First and foremost comes higher education which is generally associated with going to college or university. Many individuals also associate a degree with better job opportunities and a higher quality of living. Also, it’s often stated that degrees will pay for themselves and pay for the subsequent student loans which many young adults take out in order to pursue higher education.

However, good debt is not without its risks. While many people view higher education as a source of good debt, the “good” part is contingent upon several factors. The economy, field of study, and overall flexibility of the individual at hand each play a role in whether or not student loans truly turn out to be good debt or bad debt. A rough economy can make it difficult for college graduates to find jobs and start paying back their student loans. Likewise, a poor field of study can also complicate the process of making a good living. Finally, individuals fresh out of university may have to accept entry-level jobs and work their way up to more lucrative prospects.

Entrepreneurship

As the job market becomes more and more competitive, many people are opting into entrepreneurship and starting their own enterprises. However, starting a business requires money. While aspiring entrepreneurs can seek financial backing from angel investors, venture capitalists, or even family/friends, many choose to take out loans from various institutions.

The benefits of being in business for oneself are overwhelming. Autonomy, independence, and profit growth are just the tip of the iceberg. However, these benefits only come to fruition if the enterprise is successful. If a business fails, the borrower will not only have to pay back the debt they owed (in addition to any subsequent interest), but they may also incurĀ serious financial hardships. Like higher education, good debt in the form of entrepreneurship is a double-edged sword.

A Forewarning

At the end of the day, debt is something which should be avoided, if at all possible. While certain types of debt do have the potential to yield benefits, there are never any guarantees. Borrowing capital to pursue ventures is a trap which countless individuals have fallen into. It has worked out for some and devastated others. Ultimately, everyone has to make their own financial decisions and determine whether or not they are willing to take on debt.

 

Authored by Gabrielle Renee Seunagal

Leave a Reply

Your email address will not be published. Required fields are marked *