How the government's debt problems may be no different than your family's budget
People often ask whether debt is good or bad, or what constitutes good debt versus bad debt. It often carries negative connotations and is avoided by many, while some believe debt to be a necessary evil. There may be no definitive right or wrong answer, but it may be helpful to consider debt as a resource, like water. When used correctly and with vigilance, water can be successfully used for hydration, sanitation, recreation, and to fulfill other necessities.
However, when used irresponsibly and without due attention, water may be destructive and even fatal. In the same way, you can drown in your debt if it is used carelessly. Conditions beyond your control such as rain and natural disasters can affect the impact of water. Comparably, external events and decisions may also influence your debt and overall financial standing, so it is important to be prepared and remain conservative in your forecasts.
Some consider the resulting debt from buying a house or paying for education to be “good debt,” as greater returns on the initial investments may be realized over time. Still, everyone’s comfort level regarding debt is different and what works for one individual may not be the answer for another.
To avoid sinking in debt, ask yourself which costs are essential and evaluate the best way to cover them. With an understanding of your own capacity to manage debt responsibly, debt can be a useful tool.
Alan Westenskow is a Vice President at Zions Bank Public Finance where he assists local governments issue municipal bonds to finance infrastructure projects. He can be contacted at email@example.com