A: Ultimately, the reason we borrow money is to buy what we can't afford to pay for in cash today. Sometimes we may borrow money even when we have the cash because we have the money earmarked for some other purpose. When you purchase a home, for example, you may not use all of your available cash for a down payment. You should, in fact, keep some money reserved for emergency purposes.

Borrowing money, unless it is from a benevolent friend, costs you in interest. Thus, an important consideration is what the cost of borrowing is versus the benefit you expect to gain. Some debt is worth incurring because it allows making a purchase that provides benefits in a way that exceeds the cost of the interest.

Consider a high-school student about to enter college. Unless the student is attending a low-cost institution or comes from an affluent family, most students need to take out a loan to help finance their college educational costs. The benefits of this education stretch out over many years after college, particularly considering the higher income college graduates generally earn compared to those without college degrees. Obtaining a college degree, then, is an investment in a student's future.

Borrowing money in order to invest and accrue future financial benefits is sensible. For the following investment purchases, many people frequently consider financing part of the cost. All of these investments should be expected to increase in value over time:

Educational costs. Quality education enhances your ability to earn greater future employment income.

Real estate. Economic growth should increase the value of the property and if the property is a rental, rental income should rise over the years.

Small business purchase. If the company provides useful products and services and the company is well managed, the company's profits and value should increase over time.

The interest costs associated with borrowing for many of these investments is tax-deductible. Compared with consumer credit, the cost of interest to borrow for these investments also is lower.

With a home purchase, for example, home mortgage interest and property taxes are deductible (itemized on Schedule A of your Form 1040). With fixed- rate mortgages now going for around 6 percent, the effective after-tax cost of borrowing money is just 4 percent for a moderate income earner who is paying approximately 33 percent between federal and state income taxes.

With your own business, you may deduct the interest expenses on loans that you take out for business purposes. Interest incurred through borrowing against your security investments (through so-called margin loans) is deductible against your investment income for the year.