Not all debt is alike -- and not all debt is bad. It's very reasonable to carry a mortgage, a car loan, or a school loan if debt is the only solution. You simply need to pay attention to the cost of the debt and to manage it all effectively. If you're carrying revolving debt on a credit card that's charging you 18% per year, you're in a bad situation. If your student loan is costing you 7% per year, and the interest is tax deductible, that's much less worrisome.
Another consideration is what else you might do with the money you'd use to pay off a low-interest loan. Imagine that you've borrowed $5,000 at 6% and you now have the money to pay it off in full. You could do so, but consider the alternative. If you're bullish about a stock or two and are fairly sure that, over the next five years or so, you'll earn at least 10% on them per year, on average, then you might choose to keep the loan and pay it off gradually, and invest the $5,000. If the stocks perform as expected, you'll be earning more than you're paying out in interest.
That's why mortgages, for example, are not necessarily bad. If your mortgage rate is low, it makes perfect sense to keep paying it off gradually. (If your rate is high, consider refinancing it, if you can!) Mortgage interest brings with it some tax benefits, too.
Along the same lines, as investors we shouldn't assume that any debt on a company's balance sheet is a bad sign. If the company has borrowed funds at 7% and has put that money to work earning 12%, then that's a smart use of capital. Too much debt can be trouble, though. (Motley Fool contributor Whitney Tilson urges us to not forget debt.)
Learn more about refinancing mortgages in our Home Center -- you may be surprised to learn that you can save thousands or tens of thousands of dollars by refinancing.
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