It is not every day that you will encounter people telling you to take on debt. You have been conditioned your whole life to try and avoid it. Pay it off as soon as you have them or use cash every time all the time. All these are sound financial tips that you need to look into to manage your financial growth. However, debt is not all that bad.
There are a lot of things to remember when taking out a loan and more often than not, people would advise you against doing it. You would often hear people telling you to wait it out or to save up for it rather than getting in debt. This is because taking on debt is actually borrowing from your future self with interest payment.
If you can then it is always better to save up for purchases so you do not have to take on debt. This is because your option when you cannot pay in cash is to charge it to credit or take out a loan. Both of which would cost you additional expense because of interest fees. Not to mention other charges and penalties in case you cannot meet your payments on time.
However, there are instances when debt is not too much of a bad thing. In fact, there are times when you take on debt, you are, in a way improving your finances. This might sound something straight out of a fairytale but there are instances when taking on debt helps you achieve your long-term goals. Here are a few reasons why you should consider taking on debt for the year.
Getting a house
MSN.com shares that the interest rate for mortgage loans on a 30-year fixed rate of 4.19% is a bit higher than that of last year’s 3.65%. However, this should not hinder you from pursuing your dream of owning your own home. This remains to be one of the ultimate goals of families in the country. As such, it also constitutes one of the biggest expenses in anyone’s budget.
A mortgage loan is definitely one of the most acceptable reasons to take on debt this year provided you have planned ahead. This means that you have taken cared of your credit score to take advantage of a competitive interest rate. You also have at least 20% down payment ready as your equity. This also means that you have run the numbers and your budget can support the big monthly house payment for the next few decades.
The good thing about this debt is that your house would most likely have the lowest interest rate among all your financial obligations. You are also paying down on a property that would soon become yours. In cases of emergency, you can opt to use the house as a financial cushion. Though it should not always be your first option, you can borrow back the amount you have paid for the house. This can usually get you out of most financial emergencies.
Buying a bigger car for a growing family
Raising a family is one of the best feelings in the world. You get to see your children grow up right in front of you. From trying to balance while walking to running around the house. Bathtime to bedtime is just so full of happy memories for the whole family. As you watch your children grow up, you find yourself having to make significant changes around the house. One of which are your vehicles.
Before you delve into car loan tips, you need to understand that at this point, this could be something you need and not want. You could be used to driving sedans all your life but the kids could already have a hard time in it. It is high time you trade your old sedan for a bigger vehicle where the children would be comfortable.
If it is for the safety and convenience of your family then getting a new family vehicle is not a bad financial move. The idea is to know if your budget can accommodate a brand new vehicle or second-hand unit. Your credit score and monthly income are big factors in this decision. You also need to decide if you will sell or trade in your existing vehicles to help lower down the cost of acquiring a family vehicle.
Starting a business
Another reason to take on debt is when you want to start a business. There are other ways to raise the money like crowdfunding. However, there are still a good number of people who are taking out business loans from lenders to jumpstart their business ideas. This is because the initial capital requirement for businesses is one of the earliest stumbling blocks for any business ventures.
One other reason for people choosing a loan from a bank is because someone gets to review their credentials and makes an honest assessment of their standing. The bank would not lend money to people who are not financially stable. These banks are stringent with their lending process that it sometimes help people see loopholes in their finances.
Taking on post-graduate studies
WSJ.com shared that the latest average student loan debt for graduates stood at $37,172. That is a lot of money to be burdened with at the start of your career. However, having a degree is better than just a high school diploma. Oftentimes, it gives students a financial advantage over the long run because college degree holders earn more over time. This is because when compared to high school graduates, college graduates are on a better track for career growth.
Take on debt consolidation
One of the best ways to manage debt payments is to take out a debt consolidation loan. This is another reason to take on debt. However, you need to be well informed of how the program works to take full advantage of it. One of the things you need to remember is that you need to have the ability to make payments on your debt obligations.
The idea of debt consolidation is to help you manage your payments so you do not miss any payment due dates. This prevents you from being charged unnecessary fees and penalties on your account. It also helps you manage and improve your credit score. This is because you are able to make on time payments. You also get to make lower monthly payments if your credit score has improved over time.
The program will combine your debt payments under one account so you do not lose track of any of them. Once you consolidate your debt, you might want to look into automatic debit to lesser the chances of missing payments. You just have to make sure that the account you are using has enough funds to cover the payment.
There are a few good reasons to take on debt this year. They can increase your net worth and improve your financial chances down the line. You just need to understand that just like any other debt, you must repay it back. You need to be capable of meeting your financial obligations. This will help you to enjoy the benefits these debts brings to your life.