What does it mean to have good debt?

Blog: What does it mean to have good debt?

51% of adult Filipinos do not borrow at all. That’s it. That’s the headline.

The majority of Filipinos “do not report engaging in any borrowing behavior at all.” This might be understandable, if not favorable, as we have grown to know that borrowing money is bad. We have heard stories of unpaid debts taking away our properties, straining relationships, and even putting reputations in a bad light. We might have been taught that the only perfectly good reason to borrow money is emergencies.

But if you look around, all businesses actually have continuing debts. You can ask any accountant and they’d say that liabilities are almost always part of every business’ financials. It’s hard to expand something with mere income. At some point, you will need to borrow money or assets to grow your business.

Let us introduce you to the idea of smart loans. We agree that there are bad loans–debts that are taken just to answer a short-term need. Smart loans are borrowings meant to be used to create more value. If used wisely, smart loans may be able to pay themselves and even satisfy short-term needs without the fear of defaulting on the debt.

Say you want to travel but you don’t have enough money. Taking a loan to finance your travel would be an unwise way of borrowing as that doesn’t ensure means to repay the loan. If you instead take a smart loan and use the borrowed money to open an online business, you start a means for you to create future income streams. This then can help you repay the loan–and if successful, might also generate enough money for your travel. That’s the smart move of taking a smart loan.

Here are 4 instances when we suggest it is actually smart to take a loan.

Starting A Business

What Does It Mean To Have Good Debt? - First Standard

As we have shown in the example above, smart loans are best used to open a business. Almost all businesses’ start-up funds are partly, if not wholly, financed with credit. Businesses are good ways of creating future revenue streams that can help you repay the debt and increases your chances of avoiding default.

Why is it a smart move to take a loan rather than use personal funds to open a business? There may be unforeseen expenses, personal or business-related, and pouring all personal funds to your new business might put you in the red. Furthermore, should the new business fail (knock on wood!), you still have personal funds to fall into.

Expansion and Upgrade

What Does It Mean To Have Good Debt? - First Standard

If you already have your business up and running and you feel like you’re ready to cater to more customers, taking a smart loan to expand is a smart move for you. Hauling with one truck? Why not take a smart loan to purchase another and increase your fleet? Again, this ensures you with future revenue streams bigger than what you have now enough to grow your business and pay your loans.

Smart loans also apply to business upgrades–equipment, property, service, or products–anything that can increase your efficiency and ensure maximizing your assets for profits. As long as it creates more value for your current business, taking a smart loan to finance it would be in your best interest.

Improvement Items

What Does It Mean To Have Good Debt? - First Standard

On a personal level, it’s hard to think of things to spend borrowed money on that would yield future value. The good thing with smart loans: while it may not sometimes create value immediately, it could be used to fund pursuits that improve your capability of creating value. It’s all a matter of perspective.

For instance, taking a loan to buy a car might be unwise. But if that car loan enables you to save money from commute or brings you faster to destinations thereby accomplishing more items, that is essentially a smart loan. Taking an advanced degree to further your career position, investing in a house closer to work, and even upgrading your gadgets–all these that are meant to give you a better edge in creating future value are wise investments for smart loans.


What Does It Mean To Have Good Debt? - First Standard

Money is only a means to an end. Hence, it is unwise to just let money sit in the bank because every day, its effective value decreases. Your 1000 pesos today would not essentially be 1000 pesos tomorrow. 

As they say, let your money work for you. Say you are not ready to start a business. That does not mean you can’t create value for future revenue streams. You can take smart loans to invest in stocks and securities that have various increase rates that make your money grow. Just make sure that these increases are enough to help you repay the debt and you can see your money grow while doing nothing. Still, securities investment is a complex venture so make sure you take a lot of research before going in.

Intangible investments, like education or skills improvement, are also smart ways to use borrowed funds for. It might not give you an immediate result but it will surely help you create value in the future.

So, let us help you make #TheSmartMove and take a smart loan today! Let’s talk about it!

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