Rethinking Debt and Considering Strategic Borrowing

Debt often gets a bad reputation, and for good reason. Excessive borrowing and high-interest loans can become a heavy burden on your finances. But not all debt is created equal. When managed wisely, debt can serve as a strategic financial tool. The key is knowing the difference between strategic borrowing and financial drag.

What Is Strategic Borrowing?

Strategic borrowing refers to using debt in a purposeful way that enhances your financial position over time. This type of debt is typically used to invest in assets or opportunities that provide long-term value. Examples include:

Taking out a mortgage to buy a home that will appreciate in value
Financing a college education to improve career opportunities
Using a business loan to expand operations and increase revenue
Leveraging low-interest loans to preserve cash flow or invest elsewhere at a higher return

When used thoughtfully and paired with a plan for repayment, these types of borrowing can contribute to wealth building and financial growth.

What Is Financial Drag?

Financial drag occurs when debt slows your progress and limits your ability to achieve financial goals. This usually happens when borrowing is tied to consumption rather than investment. Common forms of financial drag include:

High-interest credit card debt
Personal loans used for lifestyle expenses
Auto loans with long repayment periods and rapid depreciation
Payday or predatory loans with unreasonable terms

These types of debt often carry high interest rates and do not provide long-term value. Over time, they reduce your disposable income, strain your budget, and delay savings or investment goals.

The Cost of Carrying the Wrong Debt

Financial drag does more than impact your credit score. It affects your ability to make choices. Servicing high-interest debt limits how much you can contribute to retirement accounts, save for emergencies, or invest in other wealth-building activities. In this way, bad debt becomes more than a monthly payment; it becomes an obstacle to financial freedom.

How to Evaluate Debt Decisions

Not all borrowing is inherently good or bad. Instead, ask these questions to evaluate whether debt is working for you or against you:

Does this debt help me build or protect an asset?
Is the interest rate reasonable and manageable within my budget?
Do I have a clear repayment plan?
Am I borrowing for something that will generate long-term value?

If the answer to these questions is yes, then the borrowing may be strategic. If not, it could be time to reassess your financial approach.

Practical Steps to Shift from Financial Drag to Strategic Borrowing

List and categorize your current debts: Identify which debts add value and which create drag.
Prioritize repayment of high-interest obligations: Focus on reducing or eliminating debts that do not support your goals.
Refinance when appropriate: Look for opportunities to lower interest rates or improve repayment terms.
Avoid borrowing for depreciating items: If something loses value quickly, consider whether it is worth financing.
Work with a financial advisor: A professional can help you identify opportunities to use credit strategically while avoiding unnecessary financial strain.

Debt can either be a tool or a trap. Strategic borrowing can support your long-term goals and strengthen your financial future, while unmanaged debt creates a drag that slows your progress. The difference lies in how you use it.

To learn more about harnessing strategic borrowing, or to review any other aspects of your long-term financial plan, call us to schedule a consultation. We can help you review your current strategies and plan for a bright future.

About the Author: Mark Roberts

In addition to managing clients’ money and giving investment and diversification advice, Mark offers something that “the other guys” don’t - a unique approach to Retirement Tax Strategies and distribution. Time and time again, Mark meets with new clients who tell him they have a great relationship with their financial advisor but have never been offered information on this kind of approach to securing their financial futures. Mark has taken this feedback to heart and works tirelessly to ensure that his strategies focus on taxes and distribution. Mark started selling insurance for a major insurance company right out of high school to help put himself through college. After graduating with a degree in finance, he dove into estate planning on the financial side to set himself apart from other financial advisors. However, as changes were made to estate tax laws over time, Mark shifted his focus to income tax strategies. Mark’s philosophy is “the blue prints are more important than the wall paper or carpet.” The wall paper and carpet represent products like investments and insurance policies, whereas the blue prints represent the strategies. Once strategies that truly fit the client’s needs are put in place, our focus can shift to providing you with the right products. According to Mark, “It doesn’t matter what carpet we use if the walls are not in the right place.” Our approach to money management is designed to generate the largest alpha (quality) with the lowest standard deviation and beta (risk). By doing this, we help provide clients with the highest return on the lowest risk. Generating income for our retirees is also very important. Because withdrawing money from your portfolio hurts the account rather than helping it, our goal is to design income strategies to harm the portfolio the least making the money last longer.

Rethinking Debt and Considering Strategic Borrowing