The Value of Debt in Building Wealth

Debt Is Not All Bad

Many financially savvy Americans regard debt with deep suspicion. Credit card balances and payday loans are losers’ games, according to financial gurus like Dave Ramsey and Suze Orman. This advice is accurate as far as it goes. You’ll never achieve financial stability by overspending or by paying usurious interest rates on consumer debt. But you could consider a more nuanced view of borrowing, one that combines the concept of “good debt” with the idea that many consumers are disciplined and smart enough to borrow rationally. The concept of using debt to build wealth doesn’t mean you should embark on a shopping spree. Fancy cars, huge homes and extravagant vacations won’t lead most people to financial stability. Instead, debt is a useful tool only if you’re willing to spend less than you make.

Debt is risky, but it gets an undeservedly bad rap. Call it “anti-debt hysteria.” For a different perspective on how to handle borrowing, consider how companies manage their balance sheets. In the corporate realm, debt isn’t evil; it’s just part of life. Of course, businesses try not to become heavily indebted, but they structure their obligations...