The four letter word- DEBT can destroy financial peace in your life. Many people even commit suicide due to their unmanageable debt. How could there be a positive reason to get back into debt?
But still, you can say not all debts are bad. Even the debts that are known as bad debts are not too bad when they are kept in control.
But remember, too much debt that you can’t afford can destroy your financial life.
In this context, I will describe when it is okay to incur debt and when it is absolutely not.
When it is worth to get back into debt
Well, there should be some reasons for every debt. In your life, there can be some situations, when you have to consider some types of debts to achieve a milestone.
1. Taking out a student loan for higher studies
Taking out an education loan makes sense as higher studies increase your earning power. But before taking out the loan, you should be very clear about your career and motivation for the future prospect. Also, you need to be practical when choosing a school. You should think about repaying the loan beforehand.
Choosing a high-end school can force you to take out a big amount of loan that you may not be able to repay after completing the studies. Because there is no guarantee of getting a good salaried job just after completing the studies.
2. Buying a house
Instead of losing your hard-earned money on a rental property, you can pay the same amount to a home loan every month.
However, you should ask yourself whether or not you can afford all the related costs of living in your own home. Otherwise, you may not be able to manage a home loan. Remember, owning a home is not a small thing. You have to save for the downpayment and get ready for the property taxes, insurance, maintenance, repairs, and higher utility bills.
Thus, you should calculate how much mortgage you can afford before applying for a home loan.
3. Starting your own business
When your personal finances are in order and your net worth is remarkably positive, then you can consider some financial risks. Some people can’t do justice to their business idea due to a shortage of cash flow. Unfortunately, they can’t take the risk of taking out a business loan as they run out of cash every month.
But people who are doing great with their money and have a potential business idea can go into debt to achieve something big in their life.
However, you should be prepared for the hard work that is necessary for establishing a new business.
Remember, you shouldn’t leave your current job as soon as you start a business. Otherwise, you may not be able to manage the business loan and your current expenses. Also, don’t take out a huge loan that is impossible to repay. Research the profit margin of the business idea and the average time of its establishment before taking out a business loan.
When it is not worth to get back into debt
Well, I am sure you all know when you shouldn’t go into debt. In short, you shouldn’t go into debt for things that don’t appreciate in value.
- Taking out a payday loan to fund a vacation
- Using credit cards for unnecessary shopping
- Taking out a loan for buying an unimaginable costly wedding ring or throwing a wedding party
Even, you shouldn’t take out a loan for buying a car. Because the value of a car depreciates with time.
Remember, less is more when you are planning to buy your first car. You should buy a small car that fits into your affordability. Ask yourself, “should I go into debt for a car? Can I manage the monthly payment?” Instead of taking out a loan, set aside money to buy a car with cash.
Remember, buying a car with a credit card means losing a hell lot of money on the interest over time. Even you can buy another car with the money that you have spent on the interest. So, think wisely!
Beware of “Good debt”! How good debt turns into bad
The good debt you took out can turn into bad debt if you don’t manage it properly. If you use your student loan for spending on luxuries, then you may end up with more student loan debt burden to fund your studies.
And, the employment scenario is still not hopeful for students who have just completed their studies.
So, with the enormous uncertainty of getting a good salaried job, you shouldn’t accumulate more debts (credit card debt, payday loan debt, and private student loan debt) during your student life.
As soon as you get a job, start making payments on your student loan to get rid of it.
Also, you shouldn’t miss a single mortgage payment. It may lead to serious damage to your credit score. If you think you are going to miss a mortgage payment, then contact your lender beforehand and give a satisfactory reason. Try to get extended time for making the payment to avoid a financial wreck that usually comes with so-called “Good debts.”
Lastly, remember, you shouldn’t say “yes” to every loan for which you qualify. Qualifying for a loan doesn’t mean you should grab it. Before taking out a loan, figure out why should take out the loan and how much you can afford. Use an unsecured loan calculator or an APR calculator to calculate your affordability. This is the right financial approach you can make to enjoy a purchase without worrying about monthly payments.
With proper help you can
- Lower your monthly payments
- Reduce credit card interest rates
- Waive late fees
- Reduce collection calls
- Avoid bankruptcy
- Have only one monthly payment