You might be wondering what a debt-proof life really means when the debt has already made itself an invaluable part of society. A lot of people rely on taking out debt for some of the biggest payments in life. It can be for school, to buy a car or even a house. People nowadays are heavily dependent on debt and credit to get by.
Is debt bad?
One of the first questions you might have at this point is if debt is a bad thing. So many people are having problems meeting their payments. The more they fall behind, the harder it will be to come back out. However, is debt really a bad thing? Is it something you need to avoid like the plague in order for you to manage your finances better?
The short answer is that debt is not all that bad but you need to manage it well. Debt can help you either reach your dream or do the complete opposite. Too much debt and not being able to manage it well can push you further away from your goals. What all this means is that depending on how you manage your finances, debt can be a great tool or a crippling enemy.
What does a debt-proof life mean?
Now that you have a better understanding of what debt really is, it is at all possible to live a debt-proof life? Can you completely avoid debt and live day in and day out with cash? You probably can but that will take a lot of effort on your part to stay away from debt. You will have to carry cash all around and save everything you need.
That being said, you can look at a debt-proof life as that of being able to weather any debt problems that come your way. This needs a lot of commitment and forward planning because even before you take on debt, you already know how you will pay for it so you do not stay in debt and compromise every aspect of your finances.
How to manage debt well?
Debt is already an essential part of life and if you use it well, it can help you reach your goals. Here are a few examples of debt and how you can make the most of it.
This is one of the most controversial debt accounts people are carrying over their shoulders at present. According to Forbes, there are about 44 million people in the country who are responsible for a $1.5 trillion debt. Simply put, this is the debt account you use to help you pay for the cost of attendance either in college or for post-graduate studies.
One of the reasons why this is a hot topic for a lot of young people is because debt payment stays with them for a long period of time. People who take out student loans to pay for an education is like allowing lenders to put a lien on their future income. They haven’t received their future pay but they already have to set aside an amount for loan payments. How can you use this yet live a debt-proof life?
One thing you need to know is that there is a correlation between education and earning potential. It simply means that people who are able to take advantage of higher education have better financial opportunities when they graduate. You can take out student loans as long as you make sure you know what your payments will be and strive to pay it down as fast as you can.
There is a good chance that a mortgage loan is one of the biggest loan amounts you would have to take out in a lifetime. Living a debt-proof life means making sure you can manage and get through your payments so how do you do it with such a big amount? One thing you need to do is research what you are really looking for in a house.
Are you single but will be married soon? Do you have a family of three trying to make it five? Are you retiring soon but still want to have your own house? These are just some of the things you need to look at before buying a house. This will determine the size of the house, what is around it, and even how the neighborhood is like.
Once you have these details, you need to make sure that your credit score is as high as you can get it to be before taking out a loan. This will help you pay lower interest rates and be able to manage your payments better. Once you do that, you will have elbow room in your household budget to strengthen your finances.
Investing in your own business
Living a debt-proof life means you are able to manage your debt payments well enough that you pay them off as fast as you can. To do that, you need to have more than enough in your budget to make extra payments on your debt accounts. Putting up a business of your own is one way to increase your household income.
Putting up a business means you might have to take out a loan to pay for your start-up capital. You might need to purchase some equipment, hire people, buy inventory, or any other expense to help you get started. There are business loans you can take out but the idea is to make sure you have a repayment plan for it.
When starting up a business, you already need to put into your plan how you will start repaying your loan. Regardless if you borrowed from venture capitalists, a bank, or a family relative, you need to know how you will start paying it back. This is one way of getting ahead of that financial responsibility and making sure the business does not fold up even before you get some traction.
Buying a car
This is quite tricky when you start talking about a debt-proof life. One thing you need to figure out is if you really need one. Are you going to use it to get to and from work? Do you need it to start shuttling your children around various activities? Or is it something you need for your own business? You need to determine and justify why you will buy a car.
The next question you need to answer is if you need a brand new car or can you make do with a second-hand vehicle? Of course, buying a new one is always preferred since you do not have to worry too much about maintenance. However, you need to keep in mind that depreciation is faster with newer cars compared with used vehicles.
Once you do get around buying a car, the first thing you need to do is start making changes in your household budget. It needs to incorporate the car payments so you know exactly where your money is going every month. As you do that, set aside some extra funds for maintenance and even for the car registration and insurance.
A debt-proof life does not mean you will avoid debt all your life but it means managing it well enough that you get to use it to reach your goals in life. Debt can form a big part of your life but the idea is getting ahead and not letting it control your life.