Understanding debt: A guide for life’s milestones

Debt is generally considered something to avoid. Yet it is a necessary step in the financial journey of most Americans.

Indeed, for many people, debt is required to get through college, buy a home, and fund items necessary for a career or business. But debt, thanks to vehicles like credit cards and payday loans, can easily run amok as well.

So, it’s important to understand both how to manage debt generally, as well as how specific kinds of loan offerings work, like:

Additionally, there are debt issues and consequences that sometimes occur at the end of life, which also need to be understood and, ideally, planned for.

A closer look at debt generally and these specific areas follows.

Handling debt generally

As noted, some types of debt are necessary to accomplish certain life goals and provide for future financial security. Such loans are often called “good debt,” because they are tied to a potentially appreciating asset, as opposed to “bad debt,” which is often tied to immediate gratification purchases and higher interest rates.

Beyond understanding what kind of debt is appropriate to take on is having a plan to meet all debt obligations — good and bad. That plan should not only allow for on-time payments, but also make allowances to fund other financial goals, like savings and family protection.

Student loans

One of the first major debt obligations many people face is student loans. It is generally viewed as good debt, because getting an education generally paves the way for better income opportunities. Of course, that linkage isn’t guaranteed and depends on study choices and performance.

Student loans can come in a variety of forms with differences in terms and repayment plans. What’s appropriate will differ from student to student, depending on individual circumstances.

Once student loan debt is incurred, there are a number of strategies for paying it off.

Credit cards and consumer debt

Credit cards and other types of consumer debt — like car loans or in-store financing plans — can quickly sink borrowers into debt, especially those with limited income early in their working life and careers. So, it’s important to understand how this kind of debt works and why it can often get out of control.

Holidays can present particular challenges when it comes to managing debt.

Home loans and mortgages

For many families, a mortgage is their largest debt obligation. It is, therefore, important to understand how mortgages work and their role in the home-buying process.

At the same time, a home can become a source of funding in the future. But here, too, it’s important to understand what that involves in terms of your debt obligations and costs.

Retirement and financial account loans

Debt repayment and saving for retirement needs can find themselves at odds. Borrowers must learn to balance competing financial priorities. They may also need to consider the pros and cons of tapping retirement funds to pay down high-interest loans.

Additionally, other types of financial vehicles, like permanent life insurance or certain types of annuities, can offer access to funds. But there are implications there, too, which need to be fully understood beforehand.

Once in retirement, debt can be tricky. Ideally, many retirees want to be debt free, because they are living on fixed income. Nevertheless, there could be instances where there is a need to try and take on new debt.

End of life

At the end of life, debt can still be an issue. Some debts can possibly remain for your heirs and family. But there are steps that can be taken to mitigate such risks.

Many people opt to consult a financial professional to plan for end-of-life issues and to protect the loved ones left behind.


As demonstrated, certain kinds of debt and the milestones of life often go hand in hand. Whether that debt becomes a steppingstone to building wealth or a financial burden depends on knowledge and planning. A financial professional can help with both.