Some see “debt” as the foulest of all four-letter words.
“All it does is reveal a lack of discipline,” they insist. “All it does is cause major stress.”
I agree it’s a bad idea to use debt to buy items that decrease in value over time. And, yes, indiscriminate borrowing often stems from a failure to spend less and save more.
But even as debt brings misery to many, it can—when used wisely—be a source of good. You heard me right: Debt can sometimes have an upside.
Using debt will cost you some interest. But the failure to use debt wisely may cost you years you can’t get back and memories that would have made life sweeter.
Think with me for a few moments:
- Farmers use debt to buy seed and equipment to plant next year’s crop. There may be a farming family in north Louisiana that doesn’t rely on debt, but I haven’t met them.
- Astute businesspeople take on debt to acquire facilities or to have the working capital they need to generate profits.
- Savvy entrepreneurs borrow to purchase assets (e.g., a rent house, a share in a business) that will produce a revenue stream.
- And some individuals take off their accountant eyeshades, put on a baseball cap and think about using debt to “live more.”
What do I mean?
Imagine having assets worth $250,000 (I like round numbers). Let’s say those assets produce annual income of $25,000 (rents, dividends, etc.). Now let’s assume you still owe $100,000 on those assets.
Do a little math and it’s clear you could use that $25,000 in annual income and pay off your debt in about five years. Five years to freedom, right?
But there’s also this: Your oldest is about to enter high school. And another child is soon to follow. After that, they’ll be gone. Out of the nest. And to a degree, out of your day-to-day life.
So you’ve got how many years left with them? Four? Five? Six?
What if you said, “Let’s stretch our debt repayment plan out a little bit”? And what if, instead of directing every dime of that $25,000 in income toward debt repayment, you said, “I’ll use half to keep paying down our debt and I’ll use the other $12,500 to invest in memories with my family.”
Fact is, you’re never going to get these years back. Ever. What you do now will largely influence your family experience for years into the future.
If you slowed down your debt repayment for the next five years to invest in your family, then picked it back up again once the kids were gone, you would (roughly) extend your journey to debt freedom three extra years.
The problem with me bringing up such a scenario is that it might give an already irresponsible person an excuse to continue in his irresponsible ways. So be it. If they didn’t find justification from me, they’d find it somewhere else.
I’m not talking here about putting expensive vacations on a credit card. Every family needs to live wisely. This isn’t one-size-fits-all advice.
But it is a challenge to think deeply—and differently—about debt. I hope you’ll use it wisely in your life. Failure to do that may have a cost – a profoundly deep and unrecoverable cost.
Using debt will cost you some interest. But the failure to use debt wisely may cost you years you can’t get back and memories that would have made life sweeter.
Make sure you count the cost of debt.
All of it.
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