When Is Debt Okay to Have?
June 19, 2026 - Debt is one of those financial tools that can either help build wealth or quietly work against it. It has helped families buy homes, build businesses, and acquire income-producing real estate, and it has fueled economic expansion. It has also created financial stress, damaged relationships, and limited freedom.
The better question is not, “Should I borrow money?” It is, “What role should debt play in our family’s finances?”
Start With Your Net Worth
Before taking on debt, it helps to understand your full financial picture. Debt should not be evaluated in isolation. It belongs inside the broader context of your net worth, cash flow, income stability, long-term goals, and the current interest rate environment.
Your net worth gives you a clearer view of whether debt is supporting your financial health or masking lifestyle choices that may be outpacing what you can truly afford.
See our related article here: Are You Tracking Your Net Worth?
Create a Family Debt Philosophy
Every family may benefit from having an intentional philosophy around debt.
That philosophy might be:
“We will never borrow money.”
Or:
“We will not borrow money for our lifestyle.”
Or:
“We will not borrow money for anything that does not increase in value.”
That last rule draws a helpful line. Cars, boats, jet skis, furniture, vacations, and other consumer purchases generally decline in value or disappear after they are enjoyed. Borrowing for those expenses can allow lifestyle to drift beyond what a family’s net worth supports.
A monthly payment can make something feel affordable even when the purchase does not fit the broader financial picture. Paying cash for the same thing might feel painful, preventing the purchase in the first place.
It is important to understand the psychology of spending and how using debt for consumer purchases can have the unintended effect of buying more than we can afford.
Good Debt vs. Bad Debt
The phrase “good debt” can be misleading because debt always creates obligation. But some debt may be more constructive than other debt.
Debt used to buy a first home may be reasonable for a young family. Very few people can buy their first house with cash, and homeownership can be a sensible step when the payment fits the family’s income and long-term plan.
At the same time, the first mortgage does not have to become permission to borrow forever. A wise long-term direction may be to buy the first home, pay it down over time, and gradually migrate toward a life where the family does not borrow money again for lifestyle purposes.
Investment debt may be different. Borrowing to buy an asset that may increase in value or produce income can be evaluated more thoughtfully. Business debt and income-producing real estate debt belong in this category.
The question is not merely whether the asset might increase in value. The question is how much risk the family can comfortably absorb when things do not go as planned.
Remember the Great Financial Crisis of 2008 and 2009? That was an extremely stressful time for many families because debt had moved outside prudent boundaries.
What About Student Loans?
Student loans deserve their own careful discussion.
The ideal outcome is to finish school without student loans. That gives a young adult more freedom, less pressure, and a cleaner financial start.
However, that ideal is not practical for every family. Some students may use loans to fund a degree that improves future earning power and may not be able to obtain that degree without borrowing.
The key is restraint. Student loan debt should be tied to a realistic career path, expected income, and a repayment plan. Borrowing heavily for a degree without a clear economic path can become a long-term burden.
How Much Investment Debt Is Appropriate?
Real estate investors commonly borrow around 80% loan-to-value. In strong economic times, that leverage can work well. A smaller down payment allows the investor to control more property, and rising rents or rising values can improve the outcome.
However, during the Great Financial Crisis, real estate values fell, financing tightened, and cash flow became fragile. Plenty of investors who were initially comfortable at 80% loan-to-value later wished they had stayed below 50%.
That does not mean every real estate investor needs to avoid debt. It means the debt level should leave room for bad markets, vacancies, repairs, higher interest rates, and lower property values.
A good investment can become a bad investment if it is financed too aggressively.
The Mortgage Question: Math Versus Peace of Mind
Consider a family with a 2.5% 30-year mortgage. Should they pay off the mortgage early?
From a mathematical perspective, that loan is inexpensive. A 2.5% loan may be below inflation, which can make early payoff less attractive on paper.
But from an emotional perspective, there is value in owning your home outright.
This can become a point of friction in some marriages — one person wants the math answer, while the other wants the freedom of living debt-free.
There may not be one universally correct answer. However, we tend to lean toward being debt-free on the home as a base of support for the rest of the financial plan.
Debt Changes Relationships
Proverbs 22:7 says:
“The rich rules over the poor, and the borrower is the servant to the lender.”
Debt changes the relationship between borrower and lender. This is especially true when money is borrowed from family members or friends.
Even with good intentions, the borrower becomes obligated, and the lender holds a position of power.
This is obvious when borrowing from a bank. It is sometimes less obvious when borrowing from — or lending to — family and friends.
These loans deserve caution. They may solve one problem while creating another. A great relationship can be eroded when a loan is involved.
Be careful borrowing from or lending to others, especially adult children. It may change the relationship ever so slightly, and often not in a good way.
Warning Signs of Debt Trouble
It may be time to ask for help if you are:
Using title loans
Borrowing from friends
Taking cash advances on credit cards
Carrying credit card balances month to month
Using debt consolidation loans
Borrowing from one lender to pay another
Making only minimum payments
Feeling unable to get ahead
For consumer debt, Dave Ramsey’s material can be a useful resource, and there are many other helpful resources available as well.
How to Get Out of Debt
Once a family decides to get out of debt, the next question is sequence.
One common approach is the “debt snowball,” popularized by Dave Ramsey. With this method, you pay off the smallest balance first, regardless of interest rate, so you can create momentum and free up cash flow as each debt disappears.
The alternative is to pay off the highest-interest-rate debt first, which may be more efficient mathematically, especially when credit cards or other high-rate loans are involved.
The right method depends partly on temperament. Some families need the emotional wins of the snowball method. Others are comfortable following the math.
The first step is to stop borrowing money, choose a method, and apply consistent extra cash flow until the debt is gone.
Using Debt With Intention
Debt should have a job. It should either serve a clear financial purpose or be avoided.
For families evaluating whether debt could improve net worth, support a business strategy, or play a role in tax planning, the decision deserves careful review.
We would be glad to talk through how debt fits into your broader financial plan. Please reach out to us if you would like to have a conversation.