So you want to go on a vacation. You’re thinking about taking a trip to Europe. You go online to your favorite travel site, Expedia, Kayak or Tripadvisor. After research you decide to book a package to travel to France and Italy over 10 days. Now you have to pay for it. Your credit card gives you travel points so you book it. Your plan is to pay it off quickly in 2 to 3 months. That 2 to 3 months turns into 2 to 3 years or more. While on your trip you have to eat, take excursions and buy gifts for your family. The debt is adding up. When you get back from vacation you have a friend’s birthday party to go to and you have to use a credit card to buy them a gift.
You want to get an education and you decide to find a university to attend to make sure you can earn more. Maybe you already have your undergrad degree and decide to get an MBA or a master’s degree in your field to earn more. So you decide to get student loans.
The issue with both scenarios is that no one should use debt for entertainment and not all degrees are worth going to school for or even getting a student loan for.
Debt should be used to grow assets, income and net worth. Buying a Chick-Fil-A franchise or a McDonald’s franchise is a good reason to use debt. If you decide you want to build a portfolio of real estate investments to earn rental income the debt would be beneficial. The largest real estate empires and home builders use debt to expand. Tesla uses debt to build more factories in order to sell more cars. T-Mobile uses debt to add more cell towers, open more stores, supply those stores with phones and all to make more money.
Debt is good when used the right way. The problem is that most people use debt to consume things that will make them broke. Not only are the items being purchased becoming worthless everyday but the escalating debt on top of that makes you broke. If you borrow $500,000 to buy an apartment building or a franchise, over time each will likely grow in value and you will earn income. Debt is good. You’re just using it wrong.