Over the centuries, debt has had somewhat of a bad rap. A common tale in our folklore is the miserable debtor, forever chained to his creditor, having to labour as a slave to pay the money back.
The suffering that has historically accompanied debt convinced a lot of cultures that debt was something intrinsically bad.
But what is often forgotten is that it was debt that allowed industrialisation to happen. And it is debt that has allowed the modern world to flourish.
Clearly there are times when using debt is actually good, even if there are some examples in history and in the present, where things have gone badly wrong.
This article argues that debt isn’t a four letter word. There are some situations where it’s a really good idea to take out a loan.
The trick to knowing whether you should take out a loan today is to think about whether you’ll benefit in the future. Let’s say for example you’ve just got a new job, but it’s out of town and you can’t walk, cycle or get the bus. You don’t have a car right now, and neither do you have the money to pay for one.
The thing is that this new job pays an extra $10,000 a year compared to the job you’ve got at the moment. Plus, there’s excellent career opportunities and plenty of job perks.
This is a situation in which taking out a loan would be an excellent idea. With a loan, you could buy a car and secure future income far in excess of the value of the investment. In other words, your loan will ultimately translate into higher wealth in the future.
There are plenty of creditors out there who would be willing to listen to your case, Evolution Money online loans being just one example.
Another example might be paying for college tuition. Whether we agree with the high costs of college or not, it’s still true that college offers a good return on the initial investment.
College costs about $18,943 per year for a four-year college course. That includes tuition, plus room and board. Multiplied over four years at you are looking at a $75,000 investment.
But compared to the lifetime earning benefits, this is small. In the US, those with bachelor’s degrees can expect to earn $700,000 more than those without. And they usually have more engaging jobs to boot.
There are other examples of when taking out a loan can be beneficial to your future, of course. These might include taking out a loan to pay for medical expenses.
Not taking out a loan could mean you that you don’t get the care that you need. And if you can’t get the care that you need you may not be able to work – something that is very costly indeed.
You may also need to take out a loan to pay unexpected taxes. Sorting out tax problems fast can mean far less pain down the road.
But the moral of the story is that credit needs to perform a certain function. It has to be used for something that is going to make you better off in the future, not worse off.
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