We finance our cell phones and furniture and, with the help of credit cards, we charge our clothing and fast food purchases, too.
With these hard truths in mind, it’s no wonder that nearly half of Americans can’t cover a $400 emergency – or that more than half of families have less than $1,000 in savings this year.
When you constantly borrow, you leave yourself with scarce cash for daily living expenses, savings, and emergencies that crop up. Because it eats up all your expendable income, debt can absolutely be the devil that stands between you and the life you really want.
When Debt Works in Your Favor
But, what if debt isn’t always so bad? What if the way we use debt is the culprit of our money woes instead of the debt itself?
Recent research and commentary from financial experts seem to underscore this idea. For example, a new study from Discover Personal Loans showed that 68 percent of those who have taken out a personal loan said that their loan helped them accomplish their financial goals. Another 70 percent of respondents said their personal loan made them feel financially responsible.
While some respondents borrowed to cover an emergency expense, others used the funds for medical bills, debt consolidation, or to start their own small business.
Financial planners also seem to agree that, despite the many debt horror stories out there, debt used wisely can be advantageous in more than one way. If you’re looking for times when debt isn’t the devil, here are some examples they offered:
#1: You want to buy a house.
If you want to purchase a home, you have two basic strategies to pursue. You can save up hundreds of thousands of dollars slowly while throwing your money away on rent, or you can take out a home mortgage and borrow the cash you need to get into the home you want.
This decision is usually a no-brainer, says Kansas City Financial Advisor Clint Haynes.
Not only is mortgage debt “good debt” because it’s secured by real estate, but today’s low interest rates have made the costs of borrowing especially low. Currently, you can get a thirty-year fixed loan for around 4 percent APR.
But, our low interest rate environment isn’t just about saving money; it can also help you grow more wealth. By borrowing money for a home at a low interest rate, you may have more cash to invest. Over time, you will hopefully earn more through investing than the interest rate you’re paying on your home loan.
#2: You need cash to start a business.
Starting your own business may be the American Dream, but you typically need cash to get off the ground. If you don’t have access to the kind of money you need, debt can be the only way to bring your idea to life.
Financial planner Matt Adams of Money Methods in Amarillo, Texas says he has seen several clients use debt to chase their entrepreneurial dreams.
“In their situations, it has paid off in a big way,” he says.
Financial planner Christopher Clepp of Strategic Financial Group says he has witnessed quite a few people use debt to get into real estate specifically.
“If you have the appetite to be a landlord, borrowing money to purchase a multi-unit building, especially an owner-occupied building, can be a great way for you to take advantage of the low interest rates available in today's market,” he says.
The income from the other units can offset some of your mortgage cost, and you build equity in the building. “You also get to take advantage of the mortgage interest deduction” says Clepp. “Rents also have a tendency to go up over time and, if you lock in a low rate on a fixed 30-year loan, your cash flow will get better and better over time.”
If you use debt to start any type of business, Adams suggests taking steps to minimize the risk as much as possible.
“Seek advice from your financial, tax, and legal professionals in order to develop a detailed business plan before you borrow,” he notes.
It can make sense to take on debt if you have a solid business plan, but you shouldn’t go into debt if you don't know what you're doing.
#3: You need a new car but want to preserve cash.
Let’s say you’ve done everything right so far. You’ve mostly avoided debt, and you’ve saved up several months of expenses in an emergency fund. You have a good job, you’re maxing out your 401(k), and you recently opened a Roth IRA.
But, all of a sudden, your car breaks down in a messy, irreparable way. You are ready for a new vehicle for the first time in your life, but you’re not too keen on taking $20,000 - $30,000 out of your savings to pay in cash. You want to save that cash for emergencies and other goals, after all.
This is definitely a situation where a car loan can make sense, says financial advisor Anthony Montenegro of Blackmont Advisors.
“If you’re in the market for a vehicle, want to maintain liquidity, and you want to save on paying any interest, a zero percent APR loan to buy a car is one of the best ways to bolster your creditworthiness,” he says.
Heck, even a low interest car loan can make more sense than plunking down tens of thousands of dollars of your savings at once. The key to using a car loan to your advantage, says Montenegro, is making sure your payment is affordable and you’re not buying more car than you need.
#4: You want to remodel your home to avoid a big move.
While your starter home may have been perfect when you bought it, a growing family can make any home start to feel small. Or, maybe your home is perfectly fine in terms of size, but you’re ready for a new kitchen or the upgraded bathrooms you’ve always wanted.
Moving can be crazy expensive, even if you don’t buy a pricier home. Selling your current property will likely result in a 6-7 percent realtor charge, plus there are closing fees and repairs you may need to make. Not only that, but you’ll have to move yourself or pay out the nose for professional help.
In this case, borrowing money to remodel the home you already have can be a huge money-saver, says Financial Advisor for Physicians Andrew McFadden. This is especially true if you have a lot of home equity to borrow against.
“Rates on home equity lines are typically just half to one percent more than going mortgage rates, and in this interest rate environment that’s a pretty good deal,” says McFadden.
Plus, when you think of the selling costs on your current home combined with the closing costs of your new home (anywhere between $2,000 to $5,000, on average), you could easily be paying $20,000 or more just to switch properties.
“Think of what you could do with that $20k on a home equity line to make some major upgrades to your current home,” he says. “It’s definitely worth considering. Especially if the upgrades are practical, the value of your home should increase in line with what you put into it, maybe more.”
#5: You want to go to college.
Everyone always rails against the horrors of student loan debt, but at least some of the outrage is misguided. Sure, college costs may be out of control, but the payoff of that college degree can absolutely be worth it. For example, a recent report from the Economic Policy Institute showed that college graduates earned 56 percent more than high school graduates in 2015.
Of course, your ROI depends a lot on the degree you pursue. If you want to use student loans to get ahead, don’t borrow $100,000 to get a degree in liberal arts or basket weaving. And instead of choosing your school based on “wants,” make sure your college choice is a practical decision. Attend state school at a discount, for example. Or, go to community college to save even more – at least for the first two years.
Either way, student loans can help you earn more if you go about it the right way.
“Borrowing money at low interest rates to fund college education costs can make a lot of sense,” says financial planner Ryan Cravitz of Milestone Wealth Management & Insurance Solutions. “It’s an investment in your future.”
If Debt’s Not the Devil, What Is?
The worst aspect of debt we should all strive to avoid is the interest we pay, says California financial planner Steven Rocha of Define Financial.
“Debt isn’t necessarily the devil, but interest on your debt is,” he says. “You want the power of compounding interest working for you, not against you, which is why it’s recommended to avoid debt.”
If you’re going to go into debt, you should also strive to borrow only what you need – and what you can afford to pay back. If you consistently over-borrow, it’s easy to fall into a spiral of indebtedness that is hard to break free from.
Debt doesn’t have to be evil, and it can even work in your favor if you use debt responsibly and with a plan. But if you give it too much power over your life, watch out.
This post was originally published on Forbes.com