Upside of Debt

Interactive Video

[A young woman with her head in her hands looking overwhelmed while working with receipts, a calculator, and a notebook.]

Narrator: Being in debt doesn’t sound positive. Often, debt is undesirable. But not all debts are created equal.

[An animated figure carrying a ball on his back labeled with the word “debt.” Followed by a “not equal” sign with 4 stacks of coins in ascending order. One letter of the word “debt” is above each stack of coins.

Under the right circumstances, debt can actually help you achieve personal and financial goals. 

[A vacant store with a “For Sale” sign in the window. Two hands shaking over a business deal. A proud business owner standing in his new hardware store.]

[Onscreen Text]:

Which of these financial goals do you think uses debt in a positive way? Select all that apply.

Option 1: student loan for a trades certificate

Option 2: personal loan for a family reunion vacation

Option 3: business loan for office equipment for a startup company

Option 4: line of credit to renovate a kitchen before selling the house

These positive types of debt are investments in yourself, your business, or your future that pay off over time. 

[A car mechanic working on an engine.]

[Onscreen Text]: student loan for a trades certificate line of credit to

[A kitchen in the middle of a renovation.]

[Onscreen Text]: renovate a kitchen before selling the house

A young business owner surrounded by boxes while ordering materials for her store on the computer.]

[Onscreen Text]: business loan for office equipment for a start-up company

These debts could lead to a potential increase in your income because they help you complete skills training or higher education; purchase an asset, such as a rental property, that could build wealth for you; or buy materials or equipment to expand a personal business.

[Three icons representing the positive types of debt: a graduation cap, a hand holding house keys, an open package with money coming out of it.

The point is that these types of debt can increase personal wealth by strengthening the value of the person, asset, or business they support.

[Money moves from the three icons and lands under the words “personal wealth.”]

While this is still debt, it acts as an investment that can increase in value and income over time.

[Several dollar signs filling the screen.]

In contrast, things you buy that are generally “wants'' become debt that doesn’t hold its value and depreciates over time.

[The word “investment” turns into the word “wants” and the dollar signs are slowly wiped from the screen.]

This means you’re going to borrow money and pay interest on something that ultimately will cost you more than the original price and value, unless you pay it off immediately.

[An animation that shows borrowing and paying interest will cost you more.]

Before taking on any debt, carefully consider if the debt has a realistic likelihood of paying for itself over time and ultimately increasing your income or wealth.

[A woman holding the word “debt” in her hand while thinking.]

Listen to how Jorge, Lydia, and Ayanna used debt in constructive ways.

[Video 1]

Jorge: I was doing really well with my small custom home construction business, but I was paying too much in time and money subcontracting out the excavation work. I knew if I got a loan to buy an excavator machine, I would save money in the long run, because I would no longer have to wait on others to finish the task. It will take me some time to pay off this debt, but in the end, a loan was necessary to help me expand my business opportunities.

[Video 2]

Lydia: I knew I always wanted to go to college and become an accountant. I worked full-time while I took online classes at night through the community college to get my associate’s degree. And I’m proud that I paid my tuition as I went. But I want to go further. My real goal is to become a certified accountant. The next-level courses are going to be harder, but I’m ready. I just won’t have time to commit to work and school simultaneously this time. But I know taking on a student loan is going to get me to my career goal. I’m taking on debt to invest in myself!

[Video 3]

Ayanna: A couple of years ago, I was in a car accident that left me with back issues. I work from home at the computer all day, and   I knew investing in a stand-up desk that I can raise and lower would be the best option for my well-being, but they aren’t cheap! In the end, I decided to buy one on my credit card. I built the payments into my budget to pay it off in 3 months. I know this is a worthwhile investment for me, because my health is important.

When you do decide to take on debt, first ask yourself: Is this likely to add value to my personal and financial goals over time? Basically, is it worth it?

[A woman at a furniture store shopping for a couch.]

If you proceed, keep these points in mind: Borrow at the lowest possible interest rates. Low-interest loans will cost less in the long run, saving money and making it easier to pay them off. Credit card debt is typically high interest. Interest can add up quickly when a balance remains.