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Considering the concept of strategic debt

Two diametrically opposed schools of thought exist in regards to debt. One school of thought believes that debt can be beneficial when used strategically. The other insists that debt is dangerous and should be avoided. Certainly, many other financial approaches embrace the “middle ground” between these polar opposite extremes. However, it is worth exploring the extremes in order to better evaluate which middle ground solutions may make the most sense for any potential borrower.

The treatment of debt as dangerous is understandable. When debts spiral out of control, it can be difficult to regain one’s financial footing. Many Americans are able to take advantage of debt relief solutions such as bankruptcy in order to make their debts manageable again. Many individuals swear off debt after they weather a financial crisis. However, strategic debt can aid both individuals with good credit scores and individuals with poor credit scores improve their credit standing.

When debt is used strategically and responsibly, it can improve one’s credit score. However, payments must be made on time for strategic debt to work to one’s advantage. In addition, strategic debt must meet certain “ratio” requirements and must be varied in certain ways in order to be effective. It is therefore a generally good idea to speak to an experienced financial planner and/or debt relief attorney before opting to take on any level of strategic debt.

Whether your credit score is good or poor, you may be drawn to either embrace strategic debt or avoid it. Only you can determine which opposite approach or middle ground is best for you. Either way, it may benefit you to explore this topic in greater detail as this effort will help you to make an informed decision.

Source: Fox Business, “Strategic Debt Can Help in Retirement,” Casey Dowd, March 26, 2015

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