Can You Use Debt to Build Wealth?

The short answer is YES. You definitely can. It all depends on what kind of debt, how smart you are about using the money you borrowed, and how diligent you are at paying it off. So now you may be asking, if debt can be used to build wealth, how do I do it?

First off, you need to know about the two kinds of debt: Good Debt and Bad Debt. Good debt is a kind of debt that has low interest and is used to increase your value in the long run. Bad debt, on the other hand, has atrociously high interest and depreciates in value fairly quickly. Examples of good debt would be student loans and small business loans. Bad debt would be payday loans and credit card debt.

So if you really want to start getting a lot of money using loan money, you need to make sure it’s the good kind of debt. That part is simple. Now let’s get to the hows.

Let’s start with small business loans and the idea of leverage. You can take out a small business loan to help you improve your business. The more you invest in yourself and your business, the greater your chances are of increasing the flow of your income. You can use your small business loan to increase your inventory, or add a branch or service to the current ones you already have. Using loan money as financial leverage to increase your cash flow is a good idea. If you don’t have a business, you can always get a small personal loan and then start a business or invest in educating yourself about a particular business or skill. The more you invest in yourself, the bigger your value will be.

But what if you already have bad debt? Would this affect your ability to build wealth using debt? It would, but perhaps not as much as you might think it will. For example, you have several credit card debts and they are growing by the month. You struggle to pay off even just the minimum and building wealth is beginning to look like a pipe dream. You can try doing debt consolidation. What this does is lumping all of your debt into one big debt with lower interest. This way, you don’t owe several banks different amounts of debt with various interest rates.

In order for you to be able to build wealth, using debt or not, the very first step is to get rid of, or to manage your bad debt. Once you get that squared away, you can start building your wealth. It is a good thing to remember to always live within your means. And the simple math of income being greater than living expenses should always be something you live by.

Which leads us to the next tip: Reduce your living expenses. The greater the difference is between your expenses versus your income, the more money you have to use as an investment. And perhaps, the best advice one could give when it comes to financing is this: always pay your debt on time and if at all possible, always pay in full.

We’re All In This Together!

A message from Payment 1 Financial Corporate Office

The ongoing Covid-19 health crisis is having a dramatic impact on our communities, from the health of our friends and families to our schools and workplaces. 

During these challenging times, Payment 1 Financial is committed to taking action to help you and your family. We’re making every effort to keep our stores open, and our people are following a strict regimen of cleanliness and sanitation. We are standing by, ready to do whatever it takes to help you get through this. 

Payment 1 Financial is limiting our lobbies to two people at a time to help prevent the spread of the virus, but we are also delivering curbside service by appointment. All you have to do is call to schedule your visit—we bring the paperwork to you in your car! Click here to view our locations.

If you find yourself facing financial difficulties due to Covid-19, rest assured that we are here to help. Just contact your local Payment 1 Financial office, and let’s discuss ways that we can assist. 

SAFETY FIRST

  • Additional cleaning and sanitization at all locations

  • The health and well-being of our customers, staff, and families is our priority

  • Schedule curbside service by calling ahead for an appointment

For the latest information about Covid-19 and what you can do to protect yourself, visit the Centers for Disease Control online at www.cdc.gov