Why Debt Can Be a Good Thing

When it comes to the best ways to use money, too many Americans operate under a key misconception, says investment adviser and financial planner Ike Ikokwu.

“Money is opportunity, and having a blind spot for maximizing investment can drastically reduce one’s future options,” says Ikokwu, author of “Winning the Money Game: Separating the Myths from the Truth.” That blind spot is debt, he says. Just as Americans have learned there are such things as good fats and good cholesterol, so too is there good debt for a prosperous financial future.

As Ikokwu explains, the three most common ways of becoming wealthy involve debt: “They use it to launch businesses, invest in real estate, or pay for advanced degrees in order to become high-income earners.”

Ikokwu also outlines the following myths concerning debt:

  • Paying off your home mortgage provides financial security.
  • A 15-year mortgage is always the quickest way to pay off your home.
  • Putting money in your 401K or other qualified plan saves you taxes.
  • The stock market is the only place to generate high, double-digit returns.

Admonishments to “stay out of debt” prevent people from gaining financial independence, Ikokwu says. Investing in education, a new career in another state or a new business may be more lucrative than paying down a mortgage.

“My definition of being ‘debt-free’ is to have enough money so that you can pay off your debt at any time – if you need to,’’ he says. “But you don’t necessarily want to do that. Good debt can save you money on taxes, increase your investment gains and allow you to take advantage of wealth-building opportunities. Bad debt, on the other hand, is like having a big hole in your money bucket.”

 

 

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