BY NATHAN SPIECKER for WEEKLY VOLCANO | 10/2/2026
Imagine a household facing a $2,500 car repair. The car is needed for work, school, and getting through the week. There is enough in savings to cover the repair, but doing so would leave very little behind. A credit card could cover the bill and preserve the savings, but it would also create a balance that has to be paid back.
Now imagine a second household facing the same repair. It has very little savings, but enough room in its monthly budget to make a payment. For this household, borrowing may be one of only a few ways to get the car back on the road.
The underlying expense is the same, but their situations and ultimately their decisions are not.
That is one reason there is no universal rule for when borrowing makes sense. The answer depends on what we are trying to accomplish, what alternatives we have, what the borrowing will cost, and how the new obligation fits with everything else we have to pay.
Having good credit is part of that picture, but it is not the whole picture. A strong credit history can give us more options when we apply for credit. It may help us qualify for a loan or credit card and, depending on the lender and the product, may help us qualify for a lower interest rate. But being approved for credit and being able to comfortably afford it are two different things.
A lender makes a decision using its own requirements and the information available to it. But we also have information the lender may not fully see: an irregular paycheck, an upcoming medical bill, a child starting school, seasonal expenses, or the need to keep some money available for emergencies.
Approval tells us what a lender is willing to offer. It does not tell us what will leave enough room in our budget for the rest of our lives.
That distinction can be easy to miss when a monthly payment looks manageable. A payment of $150 might fit into our budget today. But if that payment continues for several years, it becomes part of the money that is already spoken for each month. A future car repair, higher utility bill, or change in income does not make the payment disappear.
Credit can make something possible that otherwise would not be possible. That can be valuable. But the fact that credit makes a purchase possible does not necessarily make the purchase affordable.
This is one of the tradeoffs of borrowing: it can solve a problem today by committing some of tomorrow’s money.
That does not make borrowing a bad choice. Sometimes borrowing is what allows us to keep working, make an essential purchase, or handle an expense that cannot reasonably wait. The key question we might ask instead is whether the benefit we get from borrowing is worth the obligation we are taking on.
To answer this, it can help to start with the purpose rather than the credit product. If the problem is a large expense, are there other ways to handle it? Could we use some savings and borrow less? Could the expense be delayed? Is a payment arrangement available? Is there another source of funds? Sometimes there will be no practical alternative. Sometimes there will be several.
We also do not have to treat the choice as all-or-nothing. Using some savings while borrowing the remainder, for example, can create a different set of tradeoffs than either paying the entire expense from savings or putting the entire amount on credit.
Our focus should not be on making a decision with no downside; those are few and far between. Financial decisions often involve tradeoffs. The goal is to understand those tradeoffs before committing to something that may affect the household for months or years.
Another part of that decision is understanding the cost of borrowing. The monthly payment is only one number. Interest, fees, the amount borrowed, and the length of time it takes to repay the balance all affect what borrowing ultimately costs. Two offers can have similar monthly payments while producing very different total costs, which is why a low payment does not necessarily mean a low-cost option.
A longer repayment period can make a payment easier to manage from month to month while increasing the amount paid over time. Fees can add to the cost even when they are not part of the advertised interest rate.
An interest rate tells us something about the cost of credit, but it does not necessarily tell the whole story. Annual percentage rate, fees, repayment period, and total cost can all matter when comparing offers. We will look more closely at those pieces in a future issue.
There is also a difference between solving a financial problem and simply moving it somewhere else. Putting an expense on a credit card may get the immediate bill paid. Taking out a loan may make a large purchase possible. But the original expense does not disappear. Part of our future income is then committed to paying for something that has already happened. In a sense, we are paying for the past with money we have not earned yet. That can end up reducing our flexibility down the road.
Sometimes the most useful question is not, “Can we make this payment?” It is, “What could making this payment prevent us from doing?”
A new payment might leave less room for groceries, transportation, savings, or other bills. It might mean having less money available when another unexpected expense arrives. If income falls, the payment may take up an even larger share of what is available.
Looking at that future obligation does not mean assuming something will go wrong. It means recognizing that our financial circumstances can change, and that a decision that works under today’s conditions may be harder under different ones.
This is also why labels such as “good debt” and “bad debt” are less useful than they first appear. The same type of borrowing can make sense in one situation and create problems in another. What matters is the purpose of the borrowing, the alternatives available, the cost, and whether the obligation fits with the rest of the household’s finances.
Before borrowing, four questions can help us see the decision more clearly:
- What problem are we trying to solve?
- What other options do we have?
- What will the borrowing cost in total?
- What will this payment leave less room for?
These questions do not produce a universal answer. There is no credit score, loan approval, or financial rule that can determine whether borrowing is right for every household.
Over the past several weeks, we have focused on understanding how the credit system works, from credit histories and reports to scores and what we can do when something goes wrong. That understanding gives us more information and more options when credit becomes available to us.
Once credit becomes an option, how do we use it thoughtfully? That is where we will turn next.
This column is produced by the Washington State Department of Financial Institutions, Washington’s financial services regulator, to provide consumer education and protection. Learn more or file a complaint at www.dfi.wa.gov
