Why take out a loan? 4 ways debt can be good for you

They say, “If I owe you Dh100...I have a problem. If I owe you Dh1 billion...you have a problem.”

Wise words! Taking out a loan can be like wielding a superhero’s financial tool, opening doors and powering big dreams.

But beware: the same loan can turn into a sneaky trap if you’re not careful.

Why?

It all boils down to timing and purpose.

Borrow for growth, and you’re a financial genius. Borrow just because, and you might find yourself stuck in a debt whirlwind.

The cool (but tricky) part?

What’s true for your personal wallet holds for entire countries too. Nations borrow to boost prosperity or — if they mismanage — it can spark endless debt dramas.

So whether it’s you or your country, borrowing is a high-stakes game best played with smarts.

Here’s a guide to understanding both the personal and global side of borrowing.

When is taking out a loan a good idea?

Good situations for a loan:

#1. Consolidate high-interest debt: Replacing several high-interest credit cards with a single personal loan at a lower rate is a proven way to save money – and simplify payments.

#2. Major necessary expenses: Emergencies like medical bills, car repairs, or home renovations justify loans when savings are insufficient.

#3. Clear repayment plan: If your income is stable and you know you can make the payments, a loan lets you invest in things (education, business, home) that can boost your future earning power.

#4. Building credit: Taking a loan and repaying on time (without over-extending) can improve your credit score.

Note: Taking out a personal loan also involves paying a service fee to the bank.

When loans are a bad idea:

• Unstable income: If you’re unsure about your ability to repay, avoid fixed obligations.

• For “wants,” not “needs”: Borrowing for non-essential items (luxury items, trips, parties, high-end gadgets that are non-necessities) can trap you in debt for years.

• To pay off other loans, but without fixing habits: If overspending is the problem, a new loan without different habits will only worsen things.

• If you don’t understand the costs: High fees, penalties, or variable rates can make loans much more expensive than they appear, as per Investopedia.

Why do nations borrow money?

Nations borrow for a few key reasons:

• To fund large projects: Infrastructure, healthcare, education, disaster recovery — borrowing lets governments invest in society without immediate tax hikes, according to the World Economic Forum.

• Cover deficits: Sometimes expenses are higher than tax revenue; borrowing fills the gap.

• Economic management: Borrowing injects money during downturns, boosting demand and jobs. In booming times, governments might borrow less, or even repay some debt, as revenues rise.

• Influence monetary policy: Issuing bonds can be used to control inflation or interest rates, smoothing out the ups and downs of economic cycles, according to economist Gabriel Efe Otolorin, in a LinkedIn post.

How do nations borrow?

There are a number of ways nations or states borrow money, i.e. bond issuances, central bank loans or foreign borrowings.

Let's break it down:

• Issuing bonds: The primary method. Governments sell promises (bonds) to pay back with interest at a future date. Buyers range from private citizens to foreign governments and international institutions like the IMF or World Bank, according to the Bureau of the Fiscal Service, US Department of the Treasury.

• Central bank loans: Sometimes, the nation’s own central bank buys government bonds directly, injecting cash into the national Treasury.

• Foreign borrowing: Dollars, euros, or yen (and other currencies) may be borrowed on international markets, especially for developing countries or where local finances/credit are limited.

So why borrow?

Borrowing is a double-edged sword — whether for individuals, companies or nations (see table below). 

The key is to use loans as a strategic lever for building a future, not as a lifeline for unsustainable spending. 

For countries and people alike, understanding the risks, repayment terms, and the purpose of borrowing will determine if debt becomes a stepping stone or a stumbling block.

Following are the most indebted companies in the world

What is the world’s combined national debt?

As of mid-2025, the total global public debt is estimated to exceed $110 trillion. This staggering figure reflects growing needs, slow repayments, and massive shocks like the pandemic and recent inflation waves, as per UN Trade and Development (UNCTAD) data.

Following are the world's most indebted countries.

This information is for your reference only and is not investment advice. Please talk to a licensed financial advisor to get advice that fits your situation.]