When it comes to taking control of your financial future, few topics spark more debate or more confusion than debt. We hear about it constantly, yet so few of us are ever taught how to manage it properly. So let’s clear the air and explore a perspective that might challenge conventional wisdom:
Debt isn’t always bad. In fact, when used wisely, debt can be a powerful tool.
But there’s a catch—only when it’s used for the right reasons.
Why Debt Gets a Bad Reputation
Most people focus heavily on the assets side of their personal balance sheet—savings, income, investments—but they rarely give equal attention to their liabilities. This one-sided approach can quickly spiral out of control, especially when monthly payments begin to outpace earnings. When debt becomes an overwhelming portion of your income, you’re no longer in control of your finances. Some call this “financial slavery,” and unfortunately, it’s a common trap.
The core issue? We often use debt to buy things that lose value the moment we buy them.
Productive vs. Non-Productive Debt
Here’s a simple framework that can help guide your financial decisions:
Only use debt when the return on your investment exceeds the cost of the debt—within a reasonable period of time.
That’s it. When debt is used to acquire productive assets—things that generate income, appreciate in value, or support long-term growth—it can actually improve your financial situation.
Let’s take a closer look at examples of productive debt:
- Personal Businesses (LLCs, S-Corps, Partnerships, etc.): Using debt to fund a profitable, scalable business can be a smart move—if you have a solid business plan.
- Investment Accounts: While I personally avoid using margin accounts, investing in diversified portfolios through disciplined contributions (not borrowed money) can create long-term gains.
- Real Estate: When purchased using sound financial metrics (like cash flow, cap rate, and location fundamentals), real estate can be a powerful wealth-building tool—even when leveraged.
These types of debt, when managed well, offer the potential to grow your wealth over time. But the same can’t be said for many everyday purchases.
Where Debt Goes Wrong: Non-Productive Purchases
We run into trouble when we use debt to finance things that don’t produce a return and often depreciate immediately. These are non-productive “assets.”
Here are some examples:
- Boats
- Sports cars
- Lavish vacations
- Designer clothes
- Expensive dinners
These purchases may bring temporary joy—but they drain your finances long after the moment has passed.
Now, there’s nothing inherently wrong with enjoying life. But when your lifestyle is funded by borrowed money, you’re building a financial house on a shaky foundation.
The Real Problem: Confusing Wants with Investments
One major reason for personal financial instability is that many people no longer distinguish between investments and consumption. Debt gets a bad name not because it’s inherently harmful, but because it’s often misused.
Let’s not forget: many large, successful corporations use debt all the time—and do so responsibly. The key difference? They use it to generate returns. So why not apply the same logic to your personal finances?
So, Is Debt Always Bad?
No. Debt can be strategic when used to:
- Fund income-producing assets
- Invest in your personal or professional growth
- Leverage real estate or business ventures responsibly
However, debt becomes a burden when it’s used for short-term gratification with no long-term benefit.
Here’s the takeaway: There is room for productive debt in your life—but non-productive debt needs to go.
Rule #1: Stop Acquiring Non-Productive Debt—Right Now
This is the first and most important step. If it’s not going to grow your income, increase your assets, or improve your long-term stability, you don’t need to finance it.
In my next post, I’ll lay out a simple roadmap to help you eliminate non-productive debt and regain control of your financial future.
A Personal Note
I currently carry no personal debt—and I like it that way. My businesses were “bootstrapped” over time, built slowly and sustainably. But I know entrepreneurs and investors who use debt wisely and profitably. The difference lies in the discipline and intent behind the debt—not the debt itself.