Assessing good debt: Can you get too much? – Financial Facts

Assessing good debt: Can you get too much?

As with good food, you can get too much of a good thing, including good debt! When you incur debt for investment purposes — to buy real estate, for small business, even your education — you hope to see a positive return on your invested dollars. But some real-estate investments don’t work out. Some small businesses crash and burn, and some educational degrees and programs don’t help in the way that some people hope they will.

There’s no magic formula for determining when you have too much “good debt.” In extreme cases, we’ve seen entrepreneurs, for example, borrow up to their eyeballs to get a business off the ground. Sometimes this works, and they end up financially rewarded, but in most cases, extreme borrowing doesn’t.

Here are three important questions to ponder and discuss with your loved ones about the seemingly “good debt” you’re taking on: Are you and your loved ones able to sleep well at night and function well during the day, free from great worry about how you’re going to meet next month’s expenses? Are the likely rewards worth the risk that the borrowing entails? Are you and your loved ones financially able to save what you’d like to work toward your goals (see Chapter 4)? If you answer “no” to these questions, see the debt-reduction strategies in Chapter 5 for more information.

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