Can Having Debt Actually Be a Good Thing

While most in Americans equate Cinco de Mayo to a day to celebrate with some margaritas and Mexican food, what marked this important day in Mexican history took place at the Battle of Puebla on May 5, 1862 in Veracruz, Mexico.


In 1861, Mexico was in financial ruin after years of internal strife, and the new president, Benito Juarez, was forced to default on debt payments to European governments.
In response, France, ruled by Napoleon III decided to use the opportunity to carve an empire out of Mexican territory. Late in 1861, a well-armed French fleet stormed Veracruz, landing a large force of troops and driving President Juárez and his government into retreat.


The battle lasted from daybreak to early evening, and when the French finally retreated they had lost nearly 500 soldiers. Fewer than 100 Mexicans had been killed in the clash.
Although not a major strategic win in the overall war against the French, the success at the Battle of Puebla on May 5 represented a great symbolic victory for the Mexican government and bolstered the resistance movement.
So what should we take from this brief story?


For starters, we can always find a way to turn something into a party if we try. Many people outside Mexico mistakenly believe that Cinco de Mayo is a celebration of Mexican independence, which was declared more than 50 years before the Battle of Puebla. For many Mexicans, May 5 is a day like any other: It is not a federal holiday, so offices, banks and stores remain open.


More importantly, it reminds us to be responsible with the use of debt. Too many have fallen prey to the consumer debt trap and struggle to get out of it. With more than 2 million Americans carrying a credit card balance of more than $20,000 with some just making minimum payments, it may take decades to reduce this burden and start growing their wealth.


Instead the focus should be to establish a strong emergency/opportunity fund (of at least 3-6 months) so you can handle unexpected changes that come your way and not require you to go into unnecessary debt.


Having debt can be a good thing if it’s the right kind…the productive kind.


Productive liabilities are attached to a corresponding asset that provides an increase to our cashflow now and in the long-term. Real estate is an excellent and simple example of this. Using liabilities wisely means never borrowing money for personal consumption unless it indirectly contributes to your ability to produce (e.g. need to purchase a car to get to work). There’s a big difference in having debt and being in debt.


By building your emergency/opportunity fund and focusing on securing productive liabilities, you’ll be positioning yourself for greater wealth and prosperity while also avoiding some angry creditors knocking down your door.