If I owe you then I will always know you

In some cultures debt bonds people in a good way

There is a tribe in West Africa that embraces debt. They have a most interesting take on being beholden to one another by owing each other a debt. According to them this helps to build long lasting and continuing personal relationships.

In our modern society, debt is no joke. Most people walk through their days under the yoke of debt and worry constantly about money. Generally the idea is to strive for freedom of all debt. Generally the notion of not having debt repayments on loans, mortgages and credit cards clogging up your post box at the end of each month is the goal. Imagine the day when we can purchase any desired item with cash and never have to be enslaved by a financial institution again. It sounds like perfection, doesn’t it?

Can debt be to our advantage?

Now in actual fact, being debt free can seriously hinder your financial progress in life, and before you faint in shock, let’s look at how debt can work to our advantage.

If you are clever about it, you can use debt in ways that will allow you to have that amazing life that you have always wanted. By taking out a large loan, often this allows you to begin to live the life you dreamed of, a long time before you would otherwise have done if you had waited while you saved. For example taking out a mortgage would allow you to buy the bigger house and enjoy bringing up a family there. This is probably a better option than if you went for something that you could “afford”. Education is another big one. A student loan would give opportunities to study to be a doctor or a lawyer, which, if you came from a lower income bracket might not be a possibility for you.

Other wonderful things that you would like to do in your life could go up in smoke as pipe dreams. One man we interviewed shared his story of reaching for his dream. He borrowed money to buy a motorbike and took a month off embarking on a cross country tour. He also used a loan to travel to a distant country and marry the woman he loved. He tells us that he has run a credit card debt since he began his career, but has always been able to meet his payments.

It comes down to looking at the numbers. A simple example is that if you can borrow money at a rate of 2% and are guaranteed to make 5%, believe it our not, some people try to run up as much debt as they can. Many big real estate investors also make a point of financing their deals with low cost debt. As crazy as that sounds, this allows them to spread their finances over a larger portfolio.

It seems that it is possible to make credit work for you. There can be a definitive upside to being in debt. Run your numbers, be clever and then buy that sail boat and cruse off into the sunset. You can pay for it later. Just make sure you know what you are doing!