When can borrowing be considered good?

Borrowing is not bad at all times.

12:22 05 January 2014

Being in serious debt can be the pitfall of many well-meaning borrowers.  As it is, many wage earners may already be struggling to cope with the high inflation and job security without adding the burden of high cost of credit card and loan refinancing which is fast becoming to be a standard for most rather than the exception.

If we have to have a rule for debt, it should be to avoid it no matter what, more so if it is not for emergency causes such as holidays, luxuries, clothes, or home furnishings that you barely can afford at the moment.

However, some reasons for borrowing money can be good if the loan proceeds will be used for higher learning, business ventures or mortgages because these causes can lead to better income generation and wealth accumulation.

Borrowing for Business

Loans for business investments are good debts because if managed well, it could earn you a nice profit which should come to much more than the amount borrowed including the interest. 

Be that as it may, putting up a business is not a guarantee that you will instantly earn from it within the desired timetable, at the very least enough to pay for the loan amortization promptly. 

 

You should tread carefully and try to follow the tips below to reduce the possibility of bankruptcy, and getting stuck with a debt that could take years to settle.

1.    Get the advice of professionals such as accountants of business advisers whenever possible.

2.    Know the business you want to put up (the demands, types of clients, sources of raw materials, competitors, etc.)

3.    Create a business plan showing your overhead costs and the cost of loan repayments and how you will be able to cover all your expenses.  It may also be motivational if you can plot a timetable when you will be able to pay off your debt and start profiting from your investment.