Debt is a four-letter word, and many of us were taught to avoid it like the plague. Regardless of how much we may have tried to avoid debt the majority of us in the world today currently have debt or have had debt. Is all debt bad? Debt can actually be beneficial and help individuals reach there financial and personal goals. Let’s look at some of the ways you can use debt to actually help you progress, and not let it drag you back.
Going into debt to get a mortgage on a house is one of the most common examples of ‘good’ debt. Yes, you go into debt to buy the house, but now you can live in a house you otherwise would not be able to afford without debt. Also, each month you are paying off a chunk of the principle of your loan with every payment and getting ever closer to owning the house out right. This means you are going to see that money you are paying each month again when you sell the house (or refinance). This is in direct contrast from renting where that money goes straight to the pocket of the landlord never to be seen again. Interest rates for homes are some of lowest for any type of loans, meaning it makes financial sense to owe on your house and invest that extra money of yours in something that is making a higher percentage then your home loan. On top of all of this over history homes across the United States appreciate overtime. This means that hopefully when you sell your home it is now worth more then what you bought it for.
Depending who you ask student loans can be the best decision or worst financial decision of your life. When used correctly, student loans are an example of good debt. Student loans allow you to go to school and gain an education, you otherwise would not afford. Once done with school, you should now be qualified for a much higher paying job then you otherwise could receive. This is especially true for high paying jobs that require a lot of education such as lawyers, doctors, or physical therapists. When used for the right purpose, student loans are an investment in yourself, both financially and personally.
Interest rates for home loans are at an all time low, this is the perfect time to actually get debt to work for you instead of the other way around. If you own a house you can cash in on the lower interest rates by refinancing your home, in other words getting a new loan on your home. If you have equity in your home and any other debt especially consumer debt this is how you can get debt to work for you. If you refinance your home and get money from your equity at the going 3-4% rate, you can now use that money to pay off your other debt. If you have consumer debt such as credit cards, your interest rates could be over 20%. If you fall under these circumstances, refinancing now while rates are low can save you a lot of money in the long run.
Being in debt can be a scary thing. Although some debt should be avoided at all cost, such as consumer debt that is only a financial burden, some debt can also be a helpful thing. Debt can get you and your family into a home, help you reach the career of your dreams, or help you pay off some of some high interest rate debt like credit card or medical bills.