Good Debt: Closing the Immigrant Wealth Gap

By Miguel Tavera

Miguel Tavera and his family immigrated to the US when he was eight years old. He is the first member of his family to go to college in the US and he is very passionate about helping immigrants like him succeed. His hope is to give immigrants the tools to take risks and achieve the American dream. \”Financial freedom is freedom from fear\” – Robert Kiyosaki

Many new immigrants do not know that sometimes there can be such a thing as \”good debt\” because it can be used as a tool to buy a house or even go to college.

A number of studies have demonstrated the challenge immigrants in the US face to close the wealth gap compared to citizens. New immigrants often misunderstand the complexities of the financial system and how debt can sometimes be good.

Building a credit history and creditworthiness remain the best way for families in America to accumulate wealth and ensure their children are better off than they were.

For families living paycheck to paycheck, taking on debt is not top of mind and does not seem like the prudent thing to do, especially if they have just recently migrated. Yet, without any credit history, families are unable to purchase a house, take out loans, or plan for their retirement.

That’s why building credit in the US is critical for building wealth in the long-term. Immigrants need to learn that sometimes there can be such a thing as good debt. Borrowing money for an investment such as a home or college degree is one way that immigrants can build more wealth in the future.

Why Buying a Home Can Be Good Debt

Today, the best way to create wealth in America is through owning a home. Becoming a homeowner gives families financial security and an investment that can grow over time.

Compared to renters, owners accumulate equity, or ownership, in their home and they are able to take out loans based on their mortgage for larger purchases. This includes medical expenses or even as a tool to pay for a college education; paving the way for more economic opportunities.

Investing in Yourself Through a College Education

Immigrant families are often unable or unwilling to send their children to college because of the extremely high rates of tuition. Lack of payment options or a hesitation to take out student loans make college inaccessible. 

Yet without a college education, immigrant children are unlikely to be more wealthy than their parents.  College degrees in America are still the best way for individuals to acquire the skills needed in the workforce to qualify for higher salaries.

Without a college degree it is also less likely that immigrant’s kids will live outside the neighborhood they grew up in and probable that their children will face a similar financial situation. Unfortunately, the quality of public schools in America are determined by the neighborhood where they are located. Without a college degree, it is unlikely that children of immigrants in low socioeconomic communities will be able to provide the next generation with a higher quality education.

Katherine is currently a student at an elite university in New York City. She and her family are undocumented immigrants and they struggled with the decision to send Katherine to school because of the high cost of tuition, fees, room and board. However, Katherine’s mom had developed a healthy credit history and was able to cosign on a private loan, paving Katherine’s way to graduation. Upon graduating, Katherine will be eligible for a salary of six figures, an almost unimaginable feat without her family’s investment.

There is no question that the return on investment in a college education gives families better economic opportunities in the long run, even by taking on debt over four years.

How to Start to Build a Credit History

The easiest way for immigrants to begin to build their credit history is to visit their local bank or credit union. As opposed to applying for a credit card online, bank representatives are a great resource to learn the best way to manage credit accounts and how to improve and leverage a credit score. Credit cards are also a great way to develop healthy financial behavior, for example by making monthly payments that pay off total monthly expenses to avoid going into debt and budgeting over time.

Debt is often a taboo topic for immigrant groups, particularly in low income communities. This is especially true when households depend on cash as a main source of income. Establishing a credit history is an important step to reduce the immigrant wealth gap as well as to address the racial economic disparities in the US.