It might sound challenging but you can actually use debt wisely and to your own advantage. It seems impossible since debt already carries with it a stigma. There is this connotation that going into debt is always a bad decision. It almost immediately goes against how you manage your finances. Part of it is because debt usually leads to financial problems down the line.
People see debt as your inability to save up for a purchase and that it is always a bad thing, However, there are things that might really take you a while to save up for. And if you do decide to save up for everything, the opportunity could have passed you by. You could already be too old for college or even nearing your retirement when you do get to save up for a house.
These are just some of the examples of how debt plays a crucial role in your life. In fact, USA Today even shares that debt is already considered an inevitable component of life for a lot of Americans. Debt is already deeply ingrained in society that it’s hard not to use one. Most of the major milestones in life can have a debt component. This is because they can be a great tool financially only if you know how to use debt wisely. Here are a few examples to consider.
Education can open doors for you in terms of your career. It can also have a direct hand in giving you a bigger take-home pay. This is especially true for college degrees and even post-graduate studies. However, the challenging part of this endeavor would be the cost of attendance. It also does not help that it keeps on going up every year.
With the increasing cost and the stories you hear about student loans, it might be hard to comprehend how you can use debt wisely when you take out student loans. Well for one, you get to obtain advanced education which no one can take away from you. Another benefit of going to college is the fact that you get to have better work opportunities waiting for you. These are just some of the arguments that shows student loans are worth it.
When taking out student loans, you need to be smart about it. At the end of the day, that is still a loan that you will repay usually once you graduate. For one, start looking for free money like scholarships and grants to pay for school. Then you focus on federal student loans first because repayment is a lot more flexible compared to private loans.
Having a house you can call your own still sits on top of the American dream. You imagine a house where you can create a lot of memories with your family. Your kids running down the hall and out into the backyard playing to their heart’s content. Getting a house these days usually leads to taking out a large mortgage loan to pay for it.
Taking out a mortgage loan is another way how you can use debt wisely and to your advantage. For one, the money you pay every month goes to your equity in the house. There is also a big chance that though it could be your biggest monthly payment, it would have the lowest interest rate. This is because your mortgage is a secured loan.
You need to take control of your mortgage payment because if you fall behind, your lender can exercise their lien on your property. However, your mortgage can potentially be a lifeline in cases of extreme emergency. This is because you can take out a home equity loan to address unforeseen situations. You are essentially trying to borrow back from the money you have already paid.
Taking out a car loan is quite tricky because depreciation of the unit starts the moment you drive it out from the dealership. This makes it challenging for you to use debt wisely when you talk about your car. The value starts to go down almost immediately but you are still paying the full price of the unit for years to come.
You need to keep in mind that when you are getting a car, buy one because you need it and not just because you want one. This will help guide you if you really need one at the moment. If you need it for work or business then can justify the debt. This is because you are using the vehicle to help you improve your finances.
Another thing you need to keep in mind when getting a new car is to make sure you take good care of it. You will have to pay for the monthly car amortization every month but the cost of repairs is something you can control. The way to do it is to make sure you drive responsibly and stick to the car’s maintenance schedule.
Self Improvement Ideas
Another way to use debt wisely is to invest money in self-improvement. It can be taking classes to improve your current skill or learn something new. This can help give you better career options and the ability to earn more in the future. This is also considered one of the unconventional strategies to build net worth.
As mentioned earlier, this is a great way to learn something new. You might want to take your hobby a little more seriously and take formal classes to raise your skill level. With this, you can start to charge more and earn more. You can also look at what is in demand at the moment and try to learn a few things to get you started. If it is for you, you can take more classes to increase your skill level.
This is one of the early reasons why lenders started to give out loans to people. In order to set up a business, people had to borrow money to start it off. It would usually involve a collateral to help with the approval process. This is one of the best ways to use debt wisely. You try and borrow an amount and work your way in earning a lot more.
Of course, you need to make sure that you are able to manage the risks involved. This is especially true if you put up an asset as collateral. You stand to lose that asset if you fail to meet your payment schedule. This means that you can lose your house or even your car if you fail to pay for your loan. That can really put you in a very challenging situation.
It can be challenging to try and figure out how you can use debt wisely but it can be done. You just need to take up debt that you need to improve your position in life. Also, never miss a payment because once you do, it can ripple out to more challenging payments down the line. Falling into a debt trap not only makes it challenging for you financially, it can also put your long-term life goals in jeopardy. This can be losing your house and even waiting more years to retire. This is why it is crucial that you be able to use and manage debt wisely.