Debt is a Risky Business

By Ryan W. Smith —  An expert with nearly 20 years of experience encompassing nearly every specialization in finance, Ryan can articulate difficult financial concepts to all audiences. This comprehensive knowledge is most helpful to those who have never been exposed to high-level financial instruments. Working at Reuters America in New York City after graduating with a degree in Journalism and Mass Communication, Ryan covered high-level securitized debt, a nearly $2 trillion per year industry. View Ryan Smith’s FULL PROFILE HERE 

Debt is the lubricant of capitalism.

It helps fill in the gaps and holes and ease the many frictions necessary to move capitalism forward.

Without debt, there would be little opportunity for regular people to take risk and try to find a better way to do or make something that fills a need or want in the market.

If regular people are not afforded the possibility of advancement through effort and the assumption of risk as they attempt to find that better way, there is no growth engine to drive capitalism forward.

There can be no innovation without risk and sacrifice.

It is well known that most businesses fail in the first three years of opening. Still, thousands of people every year start new businesses, many times leveraged to the hilt with debt, a tremendous risk for many.

Some industries, like restaurants, have as high as a 90% failure rate for new businesses by year five.

Why take that risk?

Many former owners leave saddled with debt, in some instances paying that debt off for years.

Yet, if they are asked about their experience, what would they say?

Do they feel like failures?

More often than many realize, the answer is no. The experience taught them valuable lessons for their next attempt, whenever it may occur.

This is the power of debt.

The ability to turn dreams into reality, the power to illuminate and magnify, then crush and obliterate those dreams all while providing the first sign of new life in the ashes of failure.

Many of the greatest inventions in history were born as phoenix from previous failures. Quite a few of those inventions were funded on debt.

However, not all debt is equal.

How can debt be used as a powerful tool?

For those with assets, debt can be a powerful tool of opportunity, expansion and independence. For many others, debt can seem like a straitjacket, designed solely to keep you fighting to stay right where you are, using hope as a weapon of control.

Most of us never really had a chance.

There are few areas of the country where personal finance, general business, finance or economics are graduation requirements. Some will have had jobs in high school, mowing lawns, tearing tickets at a movie theater, working at a car wash or office assistant so that they will have at least real-world education. But most, if not all, of even those students, will have had no experience with debt.

How Student Loan Debt Effects Our Country

Those students fortunate enough to go to college straight from high school will get that experience quickly, as many will obtain student loans and a credit card or two before they’ve even-handed in an assignment in one of their first classes.

At least they got a free t-shirt with the credit card. For those who went straight to work after high school, many will take out a loan for a car or get a credit card within a few months of graduation. When starting out, often the only way forward is through debt.

In many situations, it is the correct assessment to take on the responsibility of debt. The risk is worth it, getting a car loan to make getting to work a certainty, signing student loan promissory notes to study engineering, nursing or management. However, knowing what type of debt will be most effective, how to manage future payments efficiently and how to incorporate savings plans while paying off debt are all topics that most people never learn about until they find themselves swimming in the deep end, surrounded by sharks out for blood.

Nevertheless, knowledge is power, and it is possible to come back, fill in the holes created by the past while walking the path forward. When debt has overtaken life, it feels suffocating, enveloping, unending. Time is needed to fill in the holes or slay the sharks.

Education is key, learning about the destructive powers of debt but also understanding its many positive uses is essential to living in a capitalist society.

Patience, persistence, and resilience all play significant roles in overcoming crushing debt.

But nothing will move forward; nothing will change without desire.