I Owe, I Owe, It’s Off to Work I Go

For some people, debt is just a way of life. You go into debt, you pay it off, you accrue more debt and then pay that off. It’s cyclical. For others, the idea that they owe anything to anybody is enough to raise their blood pressure to unhealthy levels. No matter where you fall on the ‘opinion about debt’ spectrum, the word probably has a more negative than positive connotation for you. There are, however, instances in which debt can be a good thing. Inconceivable, you say? Read on and keep an open mind.

Business Debt

When you own or run a business, your purpose is to make money. Sometimes, you need to more funds in order to cover your costs and you have to seek out an investor. So how exactly can business debt be helpful when you need to borrow money? Well, for starters, it’s not your debt. It’s the money another company owes your business. It’s a process called factoring. In a nutshell, factoring is a way of lenders looking at what’s owed to your company so they can lend your company more capital. Others’ debt to you is factored as an asset in their calculations. It’s collateral against the loan you need. You’ll have to prove these debts are owed to you. Keep careful records and copies of all invoices to back up your claims.

Personal Debt

Your debt is factored into your credit score. Too much or too little debt and the big three credit agencies will count that against you for a lower score. Just the right amount of debt is a magic number that increases your credit score. If you’re not sure what your credit score is, check with your current credit cards or bank. Frequently, you can obtain that number from them for free. You can, and should, also know what’s on your credit report. Federal law mandates you have access to one free report per year per agency.

One of the variables credit agencies use to calculate your credit score is what kind of debt you owe. Good debt is when you’ve borrowed to buy something that has the potential to increase in value, like buying a home or investing in a business. Bad debt is when what you buy will only decrease in value. For example, if you took out a loan to hoard toilet paper at the beginning of the pandemic, that’s bad debt. Things like cars and luxury items vary depending on their value and your net worth, so be careful with those.

Debt may be a four-letter word, but that doesn’t make it bad if you manage it wisely.

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