Okay, so this may go against most people’s idea that you don’t want to have any debt and that all debt is bad. But I think that’s a bit of a myth and I am going to tell you why: you can actually use debt to your advantage. While it’s true that mismanaging debt can lead to financial pitfalls, understanding the nuances of credit can open doors to strategic financial opportunities.

What is Debt?

Debt is not free money; it’s a financial commitment to repay borrowed funds along with interest, which serves as the cost of borrowing. While it’s important to acknowledge the potential pitfalls, it’s equally important to recognize that not all debt is created equal.

The Credit Card Conundrum

One common source of trouble is credit cards, often due to high-interest rates. Imagine having a credit card with a 25% interest rate – every dollar spent could cost an additional 25 cents if not paid in full before the billing cycle ends. For example, if you put $1,000 on a credit card in a month, you could have to pay an additional $250 on that $1,000 if you don’t pay it before the next billing cycle. If you continue to make only the minimum payments each month, can lead to a cycle of accumulating debt because the debt just rolls over to the next month, accruing interest. And if that balance continues to go up, it will eventually start to hurt your credit score. However, paying the bill in full every month not only avoids interest but also maximizes benefits like cash back and rewards points.

The Mortgage Advantage

My favorite kind of debt, which may or may not be because I am in the industry, is a mortgage! A mortgage is essentially a loan taken out against a home to facilitate its purchase. Unlike credit card debt, a mortgage is often viewed more favorably due to the nature of the asset it finances – real estate. Real estate is an appreciating asset, meaning it increases in value over time. While market fluctuations can influence the asset’s value, historical trends indicate a global average annual increase of around 4%. This potential return on investment makes mortgage interest a more palatable aspect of the borrowing process.

Leveraging Debt for Growth

Here are a couple of ways to strategically use debt to your advantage:

1. Credit Cards: Pay your credit card bill in full every month to avoid interest charges. This approach allows you to leverage credit card benefits like cash back and rewards points without incurring additional costs.
2. Mortgage: Invest in real estate either for personal residence or as a rental property. The appreciation of real estate can provide a substantial return on investment, potentially outweighing the cost of mortgage interest. Furthermore, as your equity grows, you may have the opportunity to leverage it for additional real estate investments.

Consult with Professionals

It’s important to note that everyone’s financial situation is unique. To use these strategies effectively, consult with Financial Planner or Mortgage Loan Originator who can provide personalized guidance based on your specific circumstances.

By understanding the intricacies of these two debts, you can use them as valuable tools for financial growth and success. Remember, informed decisions and professional guidance are key to unlocking the full potential of credit in your financial journey.