Good debts are tools to improve your situation

Dear Money Lady,

I’m in my 30s, not married and in a dead-end job. I’m thinking of going back to school but will have to get a loan to do so. Do you think it is okay to go into debt?

Jessica

Dear Jessica,

You should definitely do it!

I am so proud of you for taking the initiative to go back to school. Competition for good jobs is high and added education, experience, and business networking are necessary to gain a competitive advantage. You should be commended for making a concerted effort to get out of your comfort zone and take on a little risk. I wish more people would do the same.

Experiencing a little risk could be anything — wearing something completely different from your usual style; reaching out to someone you wouldn’t normally call; or maybe something bigger, like going back to school, asking for a promotion, or even starting your own business. The important thing is you must try. If you put yourself out there, you’ve got a 50/50 shot at being successful but if you don’t try you’ve got a zero per cent chance.

So, let’s talk about debt. Most Canadians feel that debt is a “bad thing,” and many feel quite nervous or insecure when thinking about going into debt to make money or to better their situations. Debt that advances a person’s ability to purchase assets such as homes, vehicles, or investments; or which is used to increase their incomes through business or education is what is known as ‘good debt.’ Many advisers would agree that these expenses are inherently appropriate today, and it is important for us to focus on what these borrowed funds will allow a person to achieve and if they will enhance wealth in the long run. Of course, there is a difference in the type of debt you hold, and although it would be great to be wealthy and debt-free you should remember that debt can also be a tool to make you wealthy.

Bad debts, on the other hand, are loans that do not advance wealth or income prospects, but which instead provide enjoyment and an increased standard of living that cannot be supported by earnings alone. This would include such things as balances on unsecured lines of credit, credit cards, or personal and consolidation loans. Some borrowers use credit to fill in the gaps in their earnings, believing they cannot survive on their income alone and need the credit to increase their standards of living. This type of borrower, whether old or young, has the greatest risk today, especially now, in a rising interest rate environment.

If you are trying to better your situation by going into debt, remember that we should never become complacent about our debts – good or bad. You always want to have a strategy to repay each debt in full during the life of the asset or at least by retirement.

You always want to be planning. You can’t expect to have a future if you don’t plan to have one.

Christine Ibbotson
Ask the Money Lady

Christine Ibbotson is an author, finance writer and national radio host, now appearing on CTV Morning Live, and CTV News@6.  Send your money questions through her website at askthemoneylady.ca 

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