-Some people don’t realize the damaging effects of debt. In their minds, it’s a part of life. If they owe several thousands of dollars on a credit card — it’s no big deal.
However, debt can be the kiss of death. If you think I’m exaggerating, try applying for a mortgage with a mountain of consumer debt and see what happens. The bank will reject your application because of a high debt-to-income ratio or, if you are approved, you’ll likely get hit with a higher interest rate.
I firmly believe in saving up and paying cash for everything. It’s nice knowing that I own the majority of my stuff outright. However, I’m not against credit use altogether. The truth is credit isn’t bad. It’s a tool that you can leverage to create wealth.
For instance, credit cards or personal loans are typically used for immediate consumption, not for long-term wealth creation. These credit tools, if mindlessly used, can lead to debt and stress. And debt can add a great deal of stress in your life. But rather than fear debt and avoid it altogether, it’s important to choose your debt carefully.
Financing a Home Purchase
Most people aren’t fortunate enough to pay cash for a house. If you’re tired of flushing money away on rent, getting a mortgage loan might be the only way to enjoy homeownership.
Owing to a bank hundreds of thousands of dollars is scary. However, this type of debt has more benefits than drawbacks. I’m by no means suggesting that a mortgage is for everyone, or that you won’t experience problems, but there are plenty of positives.
For example, even though a mortgage is a large debt obligation, it doesn’t have a negative impact on your credit score. It may take 15 to 30 years to pay off your home, but there’s the opportunity to build equity. And if you stay long enough to pay off the house, you can live house payment free – with the exception of insurance and taxes.
Additionally, mortgage payments don’t increase every year like rent payments. Also, homeowners can write off mortgage-related expenses, such as mortgage interest, property taxes, and private mortgage insurance. This is a big plus as it will give you as many tax deductions as possible.
And as it pertains to your lifestyle, owning your home offers you the opportunity to create a personalized, safe and healthy environment that supports your wellbeing.
Financing Your College Education
Personally, I’m not a fan of student loans – and 13 years after finishing college I’m still paying down my student debt. Fortunately, it’s not some crazy amount and this debt doesn’t hurt my credit score. But looking back, I wish I had paid my entire way through school.
Realistically, most people don’t have money to pay cash for college. And since many financial experts encourage parents to focus on saving for retirement and not college, many parents aren’t building a hefty college fund for their kids. So, if you want a degree, a student loan might be the only option. Consider what student loan type is best for you–federal or private student loans.
I am going to share that I don’t regret taking on student loans. Being able to afford college, has given me the education and experience that has supported my career and life goals. Also, I’ve remained friends with some of the most amazing people I met in college. For me personally, there’s no price tag for a truly deep connection.
Graduating with Student Loan Debt
Understandably, no one wants to graduate with debt, and there’s no guarantee that you’ll find a job (or at least a job that pays well). However, depending on what you study, getting a student loan might be a good investment in your future. You’ll need to run the numbers and decide whether the cost of school makes sense (based on how much you anticipate earning after getting your degree).
If you decide college is worth the investment, federal student loans offer super low rates and give students up to 30 years to pay off the loan. Also, there are plenty of federal benefits if you run into hardship like forbearance and deferment, which temporarily suspends payments until you get back on your feet.
My point – not all debt is wasteful. Rather than run away from credit use completely, be picky and choose the type of debt that can make a difference in your life.
Finally, if you’re in student loan debt, consider refinancing your student loans for better terms and lower rates. It may be okay to use credit to achieve life goals but don’t pay more than you should.