How to Leverage Debt to Work for You

Posted on Wednesday 04 December 2019

For many of us, eliminating all forms of debt sounds like a very good idea. Imagine a life with no worries of paying monthly payments or interest rates. Well, reality is we do live in a world where you have to pay monthly for things and there is a chance you can get in debt. However, you can either be in good debt or bad debt.

Good debt? Yes. Believe or not, there is a way to create good debt which is actually great for your credit rating, etc.

Even the richest people and the most successful companies have debt. Handling debt responsibly builds your credit, which will make it easier to buy a house or start your own business. But you can’t responsibly manage debt if you don't have any. The key is knowing how to make your debt work for you. By the way, this has nothing to do with your Roth IRA or 401K.

The trick to making debt work for you lies in choosing your debt wisely, and learning how to manage it properly. If you’re new to managing your finances, though, it’s hard to know where to begin.

In this article, we’ll give you all the tools you need to succeed, including how to tell the difference between good debt and bad debt, and some practical tips on leveraging debt to work for you.

Good Debt vs. Bad Debt: What’s the Difference?

Even hearing the word “debt” might make you recoil, but it might surprise you to learn that not all debt is bad. Some kinds of debt will hurt you financially, while other kinds of debt will boost your credit score. Let’s look at a few examples of good and bad debt.

What Does Good Debt Look Like?

The easiest way to define good debt is by looking at its long-term value. Good debt either builds value over time, or has the potential to generate long-term income. Here are some examples of good debt:

  • Education. Taking out e transfer payday loans to fund your education is an investment in yourself and your future. Your degree or certification will grow in value over time by building your skills, making your résumé more attractive to potential employers, and helping you land higher-paying jobs more easily. The ways in which an education will work for you puts it under the good debt header.
  • Small business loans. Starting your own business can be financially stressful. Unless you happen to have tens of thousands in expendable funds, you’re going to have to take out a few loans to cover a storefront, materials, business cards, licenses, and employees. Though it will be expensive at first, your small business could become a great source of income over time. Because of the long-term potential for revenue, a small business loan falls into the good debt category.
  • Buying a home. A home purchase could very well represent the highest amount of debt that you’ll take on in your life. Buying a home is one of the most common forms of good debt. Though paying off a house takes time, when you’re ready to sell, you’ll have the potential to turn a huge profit. With programs like the First-Time Home Buyer Incentive in Canada, home ownership is becoming more and more accessible to everyone.

What Does Bad Debt Look Like?

While good debt has long-term benefits and makes your money work for you, bad debt does exactly the opposite. It doesn’t increase in value over time, nor does it profit you in the future. Here’s what bad debt looks like:

  • Credit cards. The most common sources of bad debt are credit cards. High-interest rates mean that unless you pay your balance off every month, you end up paying more over time. It’s tempting to use your credit card to purchase items that you wouldn’t normally be able to afford, like that designer pair of shoes you’ve been eyeing, or a new flat-screen television for your living room. Never max your cards out, and only spend what you know you can pay back every month.
  • Personal loans. Whether or not a personal loan is good debt or bad debt depends on what you are using the loan for. Are you using a personal loan to consolidate other debts to save yourself from hefty interest payments? That’s good debt, because it saves you cash in the long run! Are you taking out a personal loan for a vacation or Christmas gifts? Bad news: that personal loan has now become bad debt, because it has no long-term payoff.
  • Expensive one-time purchases. The value of clothes and shoes drops immediately as soon as you wear them, so you are unlikely to get a return on that investment. Even a brand-new car depreciates by about 20% in the first year. Not only are many lifestyle purchases spur-of-the-moment, but some of these purchases require financing with notoriously high interest rates, so if you aren’t careful, you could end up paying double the price in the end. So don't end up spending money on the latest in finance (Seem to be Cryptocurrency these days) and end up loosing a whole bunch on Bitcoin or something. You could end up making a lot too but just do what's right for you at the moment okay?

By now, you may have noticed a theme: bad debt often comes from financing expensive things that you would’t be able to afford without a line of credit.

How to Manage Your Debt and Make It Work for You

Knowing the difference between good debt and bad debt is the first step. Once you have that down, there are a few tried and true ways that you can improve your financial health, even with debt.

Use Credit Cards to Your Advantage

Even though credit cards are ripe with opportunities for bad debt, you need to have at least one credit card to begin establishing a healthy credit score. Without a good credit score, you won’t be able to get a mortgage, or even rent an apartment in some cases. Your credit score will even affect your car insurance rates.

Your financial success with credit cards all depends on how you use them.

There are many credit cards with rewards programs that give you cash back on purchases. Some will come with higher cash-back percentages for everyday items, like groceries and gas.

Choose a credit card with a solid rewards system, use it for everyday purchases, and cash in on your rewards points to pay down your balance or save on travel expenses.

Don’t Be Afraid to Consolidate or Refinance

Debt collection can be difficult to manage. Not only do you have to remember to make payments on time, if you have multiple accounts, you’ll have to pay varying interest rates. Those extra interest payments can quickly add up over time, turning even the best investments into bad debt.

Consolidating or refinancing loans and mortgages can be done directly through your lender or bank. Consolidation can save you hundreds, if not thousands, over the lifetime of your loan. It also means that you can make one monthly payment with one due date. A little bit of organization can go a long way when it comes to setting yourself up for success with your debts.

You can also choose to take out a short-term loan to consolidate your debts on your own. Remember when we said that personal loans could be either good or bad? This is the perfect example of when a personal loan becomes a form of good debt.

Keep Your Total Amount of Debt Reasonable (Pay It Down)

If your loans, credit cards, mortgage, or any other debts are causing a strain on your finances, it’s time to get serious about paying down those balances.

Every financial situation is unique, but generally speaking, it shouldn’t be a struggle to make debt payments, purchase everyday items, and set aside a little bit of your pay check every month for savings. If your debts are getting out of control, paying them down as soon as possible is the best thing you can do.

You might decide to make higher payments on the card with the highest interest rate, or quickly pay off the card with the lowest balance. Whatever you decide, do your best to actively pay down your debt, instead of just making the minimum monthly payment. Even small improvements will make a difference over time, and ensure that your good debt doesn’t transform into bad debt.

Whether you are planning on consolidating your finances or need a boost to turn your bad debt into good, My Canada Payday is here to help. We love to help customers take back control of their financial health. Call (604-630-4783) or email ( us at any time to get in touch with our support team and find out why thousands of Canadians keep choosing My Canada Payday for their short-term loans.