Not All Debt is Bad: 3 Ways to Use Debt to Build Wealth
- liveyourmoneystyle
- Apr 18
- 2 min read
Updated: Apr 19
Most people are taught that debt should always be avoided—but that's only part of the story. While certain types of debt can be harmful if mismanaged, not all debt is bad. In fact, when used strategically, some forms of debt can be powerful tools for building long-term wealth.
This is often referred to as leverage—a concept that’s regularly used by successful investors and entrepreneurs to grow assets and increase cash flow.
Here are three types of debt that, when approached wisely, can actually help build financial stability and wealth.
1. Mortgages as an Investment
A mortgage can serve as a smart investment strategy, especially in real estate. One practical approach is purchasing a multi-family property and living in one of the units. Rental income from the other units can offset or even cover the monthly mortgage payments.
Pro tip: Treat your living space as if it's rented. Set aside the "rent" you would pay into a high-yield savings account each month. Over time, this builds a financial cushion that can be used for another property or other financial goals.
Additionally, real estate typically appreciates in value over time. Selling the property down the line could result in a profit that can be reinvested.
Bonus tip: When tenants move out, consider adjusting the rent to reflect current market rates. However, for reliable tenants, keeping rent stable may reduce turnover and vacancy risk.
2. Student Loans as an Investment
Student loans can be a smart form of debt when used to invest in education or skills that increase earning potential. Before taking on student debt, it’s important to research the career path and expected income. The cost of education should be justified by the return on investment.
Key consideration: Compare the total cost of the degree or certification with the expected post-graduation salary. If the income potential outweighs the cost, student loans may be a worthwhile investment.
Pro tip: Many employers offer tuition assistance or reimbursement. Employees seeking to expand their skills should check with HR to see what's available—and even consider negotiating for more support if the training benefits the company.
3. Business Loans as an Investment
Business loans can be essential for starting, expanding, or acquiring a business. However, this type of debt should be taken on only with a clear and realistic business plan.
A loan should support future cash flow—meaning the business should generate enough income to repay the loan and still be profitable.
Pro tip: Buying an existing business can be an alternative to starting from scratch. With many baby boomers retiring, well-established businesses are often available for purchase. This route can offer immediate revenue and existing customer bases. Still, careful financial review and due diligence are critical.
Final Thoughts: Debt as a Strategic Tool
Debt, when used thoughtfully and intentionally, doesn’t have to be a setback—it can be a stepping stone. The key is understanding the difference between productive debt and destructive debt. With research, planning, and clear financial goals, debt can be leveraged to create opportunities for long-term financial growth.
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