Some of the most famous personal finance personalities (Dave Ramsey, cough, cough) like to go around telling everyone that they should never go into debt to buy anything. “If you can’t afford to pay cash for that car, you can’t afford the car,” they say. “Credit is bad!” “Credit cards make you buy things you can’t afford!” “If you have to use debt, you shouldn’t buy it!”

The problem is that these people don’t understand what it’s like to be poor, or even lower-middle class. 

Yes, many people get into trouble when using credit cards or borrowing money. That doesn’t mean debt is inherently bad. 

Debt as a survival tool

In fact, debt is a tool that, when used correctly combined with luck, can help people build wealth and improve their financial situation. 

Let’s talk about buying a car for a moment. Sure, there is no reason why anyone needs to buy a brand new Audi, when a less-expensive car will suffice. And yes, cars depreciate in value the moment you drive them off the lot. 

But sometimes you need a car. If you live in an area without public transportation, you have to have a car to get to work or school. Not having a reliable vehicle puts you at risk of losing your job, missing out on work, or being unable to take classes that might improve your ability to earn more. 

In order to get to the job, to earn the income, to save up to pay for the car, you have to have a car. So how do you save up money to get the car you need to get to the job if you can’t get to the job to earn the money to pay for the car? See what I’m saying? 

This is where car loans can help. Let’s say you have regular income and your car breaks down, so you need a new one. You don’t have enough money to just buy a car, but you just enough for a downpayment and room in your budget to make a monthly payment on a decent quality car. So you buy the car. 

I hear the anti-debt folks saying that this person should buy the $2000 beater until they can save enough to buy the nicer car, but how much money are you going to waste fixing it every time it breaks? 

There’s got to be a middle road between overextending yourself and never taking on debt. 

And it’s not just on a survival level. 

Debt as a strategic tool

In 2013, my husband and I traded in my 12-year-old Honda Civic for a minivan. That car was great, but I was pregnant with our third child, and cramming three car seats in the back just wasn’t going to work. 

On top of that, some of our parents were living nearby and we wanted to be able to fit them in the car sometimes. We also wanted to take road trips, so buying a quality vehicle that we could drive for years was going to allow us to travel without paying for plane tickets. 

Although we had enough saved to pay for the van, using all of our available cash would have depleted any funds set aside for emergencies. If my husband had lost his job or we’d had a medical emergency, we would have had to resort to credit cards. That’s way worse than taking on a car loan.

Instead of spending all of our savings on the car, we made Roth IRA contributions and maintained a healthy emergency fund. Because our living expenses were low compared to income, making the monthly payment was no big deal. Getting a car loan was a smart financial decision and contributed to us being able to build security while also leading the life we wanted. 

These are just a few examples of how debt can be a tool, but the concept applies to home loans, student loans, and sometimes even credit cards as a last resort.

Be smart with your debt

When thinking about debt, you have to be smart and strategic about it. What are you giving up by not strategically using debt? The chance to own a home and build equity? A college education? Retirement savings? What is the opportunity cost when you decide not to use a loan? 

Of course taking on way more debt than you can manage is a bad idea, but that doesn’t mean all debt is bad. You have to think about your entire financial picture as a whole and figure out what you can afford and what will be the best use of your resources in the long term.

Related article: How to Pay Off Debt

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