Flathmann & Stern

The Benefits of Debt

Debt is something that is owed and is usually owed against assets, or things of monetary value.  Some may think that debt is a bad thing and may be right with the recent financial turmoil.  For all of the hindrances of debt, there are actually a couple of good benefits that come along with it.

First off, debt allows people to make purchases they would not be able to do.  How many people would have $300,000 lying around to purchase that house?  Exactly, a mortgage is a type of debt that allows people to purchase a house and pay it off in terms.  This is a great benefit for many homeowners.  The same can be said for the car, the television, or even that vacation you took last year.  Debt is a good tool when used properly and in moderation.  The only time it becomes a liability is when people abuse its powers and get too far down the debt hole.

Debt is also a good tool for businesses, small and large alike.  A business takes on debt to hopefully grow and become larger.  This is called leverage, when a company uses its assets as collateral for a loan or debt.  Most small businesses use some form of this.  The larger companies do this as well, but in much larger terms.

So, as you can see debt is not such a bad thing.  It can help people afford large purchases and even help businesses grow.  A problem is when someone or some company use it as a crutch.  If you use debt wisely and cautiously, you will keep yourself clear of long term debt.  Make sure you pay off your bills on time and never take out more than you think you can pay back.  You can never exercise too much caution when taking on debt.

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