I’ll go ahead and say that I don’t love the idea of debt, I hate the feeling of owing somebody something, but I do admit that debt can be a very powerful tool, when used responsibly. Taking on debt for a house has been a big builder of net worth for me, and student loans, for which you receive a good degree that you can get a job with, can make sense. Debt might only have 4 letters but it is a big, scary word to most people. When we talk about debt (if we talk about money at all) it is always the risks of not paying it off, of debt spiraling out of control or loan sharks taking advantage. 

If you approach debt with a headful of fear, concerned about the worst-case scenario of having to defend yourself from a lawsuit over debt or sell all your assets to repay, you aren’t approaching the subject smartly. While debt can be risky, it’s important to understand that it may be necessary for you to get what you need now, or to prepare for a better future.

If you understand the risks and you know your rights, debt is nothing more than a case of doing the math and working out what you can afford. 

Only Take on Debt You Need

There is a huge difference between want and need. A need is something you can’t do without – a roof over your head, utilities, food. A want is something that will improve your life but isn’t necessary – a streaming subscription, fancy clothes, fun money for going out. You can, and should, include wants and needs in your budget but you should never take on debt for something you just want.

If you want something, the best approach is to save up for it. However, if you need something urgently, you might consider taking on a debt. A good example here is student debt. There aren’t many young adults with enough money to pay for their education and taking on debt in this instance might be seen as an investment into their future. Similarly, medical debts, small debts to help you move houses or even buying a house can make sense. I’ll even say that I’m somewhat ok with car debt, but make sure that you’re borrowing money for something you actually need, not just want so bad that you think you ‘need’ it.

Only Take on Debt You Can Afford

Before you agree to any type of debt – credit card, mortgage, loan – you must do the math to make sure that you can make the monthly repayments. Most forms of debt come with a lot of fine print so please read it carefully, ask any questions you might have and don’t simply sign on the dotted line. 

Many creditors will tell you that you are able to borrow more than you can easily repay. Don’t get sucked in. Only take on debt you can afford to repay each month and you actually need. This isn’t the time for stretching your finances.

Always Look For Financial Alternatives

Debt is just one solution to a money flow problem. You should always look at alternative ways to pay too. Saving up is the best way to get what you want without any risk and you might find a suitable side hustle to make a little extra on the side. Selling things you don’t need anymore is another good way to generate a bit of cash. 

Whatever you do, don’t assume that debt is bad or scary or difficult. Do your research, plan your debt strategy and stick to your limits. And if in doubt, ask for help. 

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