There is this notion that when you have a huge debt, you are doing something wrong. Debt has this stigma in society that even when you were young, you were told to stay away from it. You were taught to save up for things you wanted to buy. You remember that toy you wanted when you were small? There is a good chance that you opened your piggy bank to buy that.
When you grew up, you carried those money lessons over and avoided getting in debt as much as you can. If you did have no choice but to take out a loan or even borrow money from family, you might feel like a failure. This is because since you were small, you were taught to stay away from incurring debt and to save up for any purchase you wanted to make.
But there was nothing wrong with the financial lessons that were given to you when you were still small. Yes, debt should not be encouraged and you have to save up for things you wanted to purchase. However, times have changed and financial lessons in the past may need to change with it including how you view having a huge debt.
It does not mean that you can spend with reckless abandon and be in debt all your life. The idea is to use debt to your advantage. You need to turn the tables and use it as a tool to help you improve your life and not the other way around. Debt can still put you under a lot of financial stress if left unchecked but it can also open up a lot of opportunities.
Situations where having a huge debt can benefit you
As mentioned earlier, there are instances where taking out a loan and being in debt can actually work for you. Here are some of them worth looking into.
Owning a home remains to be one of the top goals Americans have and it is also one of the most expensive purchases you will ever make in your life. These are usually in six and even seven-figure expenses. It is a decision that is both exciting and scary at the same time. Exciting because you will finally have a place to call your own. Scary because you suddenly have a big debt amount looming over your shoulders.
However, taking out a mortgage loan can also be one of the most rewarding decisions you can ever make in your adult life. For one, think of the security you get in having your own home. It is a huge debt amount in your finances but as you pay it off, you slowly increase your equity or ownership of the house as the years pass by.
Your net worth increases, you get to st roots in a community that you have personally chosen, and more importantly, you get to have a place to call your own. One thing you have going for you when you are paying for your house is that you can tap on that equity when you need to. You can borrow that amount and still enjoy a low-interest rate.
Student loans at present are getting a lot of flack for giving college graduates a huge debt amount they will carry right out of the bat. Forbes shares that 2017 totals reached $1.3 trillion for student loan debt alone. A lot of people believe that this puts young professionals at a disadvantage with the sheer amount of payments they need to be responsible for well before they even get their first paycheck.
In fact, the average student loan amount keeps on increasing year after year. The cost of attendance is a bit prohibitive to people who do not have any college fund to speak of. This is the reason why a lot of people are relying on student loans to get them through. It can be a huge amount in the end but it can help you land a better job when you graduate.
There have been studies that show how getting a college degree helps you increase your chances of getting a better and higher-paying job compared to highs school graduates. If you choose to, you can even continue and pursue post-graduate education. This opens a lot more doors for you not only for your career but you can even consider teaching. The student loan amount may be a huge debt but it helps you earn better as well in the future.
You might have a business idea you have been wanting to launch since college. It is even possible that you identified a potential market while working you believe you can capitalize on. In these types of scenarios, there is one common hurdle to this objective – starting capital. It would be great if you were able to save up for it but chances are you would have to borrow it.
You can approach lenders and take out a loan to get your business started and that would be a huge debt amount. You can look for investors or even crowdfund your way to get getting that idea off the ground. The bottomline is that you are using other people’s money and you would have to repay that back. Challenger Gray even shared a 2017 study showing that about 7.4% of job seekers started a business in the last quarter of 2016. This was way higher than 4.8% from the same time the previous year.
This could already make you think twice and it should because you need to have a solid business plan to manage the business well. However, it could also challenge you to do better and make sure that you earn off of the business you are putting up. You are investing in your future financial stability and the big debt amount will be worth it if you work hard.
What you need to keep in mind
In light of huge debt amounts that you are taking out, there are a few things you need to remember to help you manage your payments and finances better.
Stick to your payments
It is important that you stick to your payments after taking out the loan. Not only is it the right thing to do, doing so will also help you increase your credit score. As you make your payments on time, it will reflect positively in your credit report. A higher score will give you the chance to better financial opportunities in the future such as lower interest rates and even pre-approvals on some loan applications.
If you are having a hard managing your many payment obligations, you can look into debt consolidation to help you keep tabs on what you need to do. You can combine your payments under one account and make payments a lot easier. You only have to worry about one payment amount with one interest rate due once a month.
Be smart which ones to pay down aggressively
It is a good idea to be aggressive with huge debt payments in order to pay them off a lot sooner. However, you might not be able to do it for all the accounts so you need to choose the ones you should focus on. You can choose from either paying down the account with the highest interest rate or the one with the smallest debt.
Paying down the one with the high-interest rate first helps you save interest payments down the line. Choosing to pay down the smallest account gives you the chance to pay down an account quickly and free up some money.
Stay away from unnecessary expenses
The last thing you need when paying down debt obligations is adding more along the way. Adding more debt payments only negates the effort you are making to pay off your big debt accounts. It is best that as you try and focus on paying down big accounts, you stay away from adding more onto your plate. Regardless of how small they may be because they can quickly add up and hinder you from making the most of your loan accounts.
It is not always a bad thing to have huge debt payments as long as you are able to utilize that loan and you stick to your payments.