When Does It Make Sense to Borrow Money?

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By David

To hear some tell it, all debt is evil. However, in the real world of working adults who own homes, have long-term investments, are raising children, and facing other expected and unexpected financial demands, it often makes very good sense to borrow. And when you stop to think about it, nearly all homeownership is based on borrowing, so owing money, in and of itself, is certainly not a detrimental behavior. And, while there are dozens of terrible reasons for going into debt, there are several very good ones, including starting a new company of your own, using home equity to gain access to needed cash, paying for college or grad school, buying a car, or consolidating credit card indebtedness. Here’s more about each of the smart reasons, and ways, to borrow.

Starting a Business

One of the most common reasons working people take out loans, other than to purchase a house, is to start a business of their own. As long as you’ve done research, developed a business plan, and made a detailed budget, starting a business can turn out to be a wise long-term investment. If this is the route you choose, be sure that you protect yourself from identity theft along the way. Entering sensitive information into web browsers unprotected can sink your ship before you get a chance to sail your maiden voyage.

Loans Based on Home Equity

There’s probably no smarter way to borrow than via a home equity loan or HELOC (home equity line of credit). Whatever your reason for needing a quick infusion of cash, equity-based loans typically offer the best terms and you can often get approved and have funds in your hand in a matter of days. Of course, the key to the magic is the fact that you are a homeowner with enough built-up equity to qualify for such an arrangement.

When you stop to think about the concept, this form of borrowing is exceptionally sensible because you’re actually using your own assets, namely the amount of ownership you have in your home. The best way to learn the details of this strategy is to review a comprehensive online guide that includes current HELOC and home equity loan rates from major lenders. That way, you can get an accurate idea of how to take advantage of this form of borrowing.

Education and Vehicles

College-bound students and anyone who needs transportation borrow money to cover these two necessary life expenses. Both represent investments, though of quite different kinds. Education tends to pay off over many years in the form of higher income, while vehicle ownership is almost a rite of passage for working adults all over the world. Refinancing is a great option when you need to pay off certain debts, especially those that have a high interest rate. As an example, a parent may hold a parent plus loan for their child with a high interest rate. By refinancing your parent plus loan, you can find the lowest interest rates available and pay the loan off quicker.


Borrowing for debt consolidation can be tricky, and there are certainly pros and cons,  but when done correctly, the strategy can save you thousands of dollars and make your life much less stressful. Even if you have iffy credit, it’s often possible to obtain a bill payer or consolidating loan from your primary bank. What’s the big benefit? For the majority who go this route, it is about interest rate differentials. Say you owe $30,000 on high-rate credit cards but can get a payer loan at half the interest rate to pay all the plastic off at once. Then, you’ll end up paying once per month on the new loan, with smaller total cash outflow each month.