April 21, 2021

Should You Take On Family Debt?

For some families, debt can be a very touchy subject. Mismanaged debt can create all kinds of problems within a family, whether its caused by reckless spending, improper use of credit cards, excessive borrowing, and so on.

This leads to an obvious question—should there be family debt? The answer is an emphatic yes. If used properly, debt can represent a path to prosperity, and there are some purchases where it makes more sense to incur a debt that buys an item outright.

Start with the hidden advantages of debt. Using debt wisely to build a solid credit history can increase your purchasing power, and it shows creditors that you’re reliable and responsible when you do take out a loan or use a credit card.

Let’s take a luxury item—a boat or a car, for instance. Many people can’t afford these items strictly based on their credit history, but if you’ve used debt effectively, you already have one foot in the door when it comes to buying them.

There are also some items where it makes more sense to go into debt to buy them than it does to shop and buy in person. In this case, we’ll use the example of an item or a group of items where the features and attributes are fairly boilerplate, but you live in a remote rural area where a long trip is required to make the purchase. Buying online or by using a credit card can actually save you money in this case, so its a perfect example of a case where incurring debt can work to your advantage.

Finally, let’s examine the case of buying a home where you have enough cash to make the purchase outright but doing it would make you cash-poor.

In this instance, its both prudent and wise to take out a loan for at least part of the purchase, given that this tactic will help preserve your funds for daily expenses and enhance your credit score when you pay it off.

There are dozens of other examples, and family debt can also be part of your overall financial plan as a family. That’s why it makes sense to look at debt as a tool and use it wisely and effectively.

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