To many people, debt is a true four-letter word.
After spending years struggling to get out of debt, many rightfully hate it, vowing to never owe anyone a penny ever again. We’ve all heard there’s good debt and bad debt. For these people, there’s no such thing as good or bad debt. It’s all bad.
Nobody wants to end up like that. So before you make the decision to go into debt, ask yourself one question.
Will I end up richer because of the transaction?
This question is often difficult to answer, I realize. A college education should pay off over time, but we’ve all heard the stories of college-educated baristas slinging coffees for a living. And in 2005, the average American borrowing to buy a house had no idea how bad the future was going to be.
There’s nothing guaranteed in the world of investing. But we can make educated guesses. A house should go up in value over time. We’re pretty sure education will more than pay for itself. And borrowing to invest in stocks can certainly work out.
On the other end of the spectrum, I can guarantee credit card debt to finance a vacation is something that will not make someone richer. Most car loans are similar, and I’ve yet to meet anybody who can use cash from payday loans effectively enough to make them worthwhile.
Many of us treat borrowing as an emotional decision. By asking yourself one little question, you’ll change the decision to something much more rational.
