Last month, I shared financial lessons I’ve learned — seek wisdom first, hold steady with conviction and embrace trade-offs. That column resonated with Jeff, a successful local businessman, who wrote that he adopted this philosophy years ago and it has served his family well.
But he tossed me a challenge: Dive into debt.
“Debt by most is looked upon as rather undesirable,” he said in his email. “However, to many business people it is looked upon as a tool as it should be to a certain cautious degree.”
Jeff’s insight is spot-on. Debt isn’t merely a liability — it’s often a lever in business, a way to turn ideas into action. And it’s not just for the boardroom; consumers can harness it too, though plenty misuse it. I’ve met high earners who should be wealthy but aren’t — spending lavishly and inefficiently, weighed down by debt’s darker side. Whether you’re growing a company or managing a household, debt can lift you up or drag you down. Here’s how to wield it right, with caution as the foundation.
Debt as a lever
Debt is a catalyst. It lets you move fast — funding expansion, acquiring assets or bridging cash flow — without waiting to save every dollar. The principle is simple: borrow now, earn more later and outpace the interest. Conviction becomes even more critical with debt because you now can lose more than you investment. You had better know why you need the money and how to use it effectively. If debt fuels a project that boosts revenue or secures an asset that appreciates, it’s not just a loan; it’s a strategic play. The book “Rich Dad Poor Dad” discusses the concept of good debt.
I’ve tapped a home equity line of credit (HELOC) myself, borrowing against equity to seize opportunities when they arise. I bought a second home with it, renivated it in my spare time, if such a thing exists. For me it was worth the risk: I knew the value of the building, I knew the cost to fix it up, I knew I could do the work, and I was risking the market wouldn’t turn on me. I was able to rent it successfully for a few years bringing cash flow, waited until I could capitalize on long term capital gains rates and sold it to reinvest the money into the next project and eventually into public companies. It’s a flexible tool — unlocking cash without selling off what you’ve built. Done with care, it’s a step toward wealth. But here’s the trade-off; leverage amplifies gains, sure, but it can just as easily amplify losses. “Risk comes from not knowing what you’re doing,” Without a clear grasp of your plan — revenue projections, cash flow, or personal budget — debt’s a gamble, not a tool. Whether you’re a business owner or a homeowner, conviction demands caution as its shadow.
The risks of overreach
Here’s a stark reality: 100% of businesses that file for bankruptcy have used debt. Jeff’s call for caution isn’t just smart — it’s critical wisdom. If profits slip, costs rise, or markets shift, those payments don’t pause. Over-borrow, miscalculate your returns, or skip the due diligence, and what began as a boost can sink your ship. Businesses fail when debt outgrows their ability to manage it — growth turns to gridlock, and the lever becomes a burden.
It’s not just companies. Consumers fall into the same trap. I see folks with hefty credit card balances they don’t clear monthly — an anchor dragging them down. High interest compounds fast, turning a fleeting splurge into a lasting load. Then there’s the lure of keeping up — buying the biggest house or the newest truck. Those trucks at Gene’s lot gleam, no doubt, but the payments can outlast the shine, stretching budgets thin when priorities shift.There is a time and place for buying a great truck or upgrading your house however, just cause someone will loan you the money doesn’t mean you can truly afford it. Spending inefficiently with debt can unravel even a solid income, leaving wealth as a mirage.
Stock market leverage is a risk I avoid entirely. Some borrow to juice their trades, chasing quick profits. I don’t touch it. Markets are fickle — lose 20% on borrowed funds, and you’re not just out your stake, you owe more, plus interest. It’s the antithesis of Peter Lynch’s wisdom: “The stock market is a device for transferring money from the impatient to the patient.” The problem with debt in stock of publicly traded assets is many times when the market acts irrationally the debtor can be margin called. Forced to pay off the loan early and sell at a loss. I don’t advice this. I advice to invest for the long haul rather roll the dice with loans. Debt needs a firm footing — tangible assets or reliable income — not market whims or fleeting trends.
I think debt can be used effectively to help with the purchase of an asset, most people use it to their advantage buying a home. They put a small fraction of the price down, they can use the asset years before they could if they had to save for it. Also, they gain outside returns if the property appreciates because they do not just have a gain on the money they invested, they have a gain on the total value.
Wisdom first
So how do you master debt without it mastering you? It starts with what I wrote last month: seek wisdom first. Borrow with intent — something that pays back, whether it’s a business venture or a consumer move that builds value, not just fills gaps or fuels flash. Know your numbers cold — interest rates versus returns, cash flow versus costs — and build a buffer, because life and markets don’t follow scripts. Consistency is key too; don’t leap at every shiny prospect, be it a business deal or a lifestyle upgrade.
For businesses, this might mean stress-testing projections or keeping reserves to weather lean times. For consumers, it’s paying off credit cards monthly or sizing homes and vehicles to fit reality, not ego. Debt’s a lever and it demands discipline. Jeff’s thrived by using it wisely, inspiring this piece. I’ve watched high earners falter because they didn’t — credit card debt piling up, homes too big, purchases too fleeting. It can work for you too, but only if you balance its power with its diligence and prudence.
