Is debt always bad? This post from a reader explores the different types of debt, and which are better and which are worse to have.
In the world of finance, debt is a contentious issue. Some people will tell you there’s never a good reason to borrow money, while others rely on debt constantly.
If you’re trying to make up your mind, any number of experts will tell you the same thing: there’s a time and place when borrowing makes financial sense.
When that time is for you depends on a lot of factors. But generally, you can draw that line by following this basic guide. Check in with this list to make sure you’re borrowing for the right reasons before you apply.
Good Reasons to Borrow Money
Bad Reasons to Borrow Money
There’s nothing inherently wrong with buying new tech, getting married, or going on a holiday if they give you joy. But wait until you can afford these things.
Otherwise, you’re promising future cash on paying everything back. This could be money better used elsewhere, like in a savings account or retirement fund.
Remember this the next time you’re thinking about borrowing money. With these rules in place, you’ll make the right decision when it comes to your next loan.
See my disclaimer.
In the world of finance, debt is a contentious issue. Some people will tell you there’s never a good reason to borrow money, while others rely on debt constantly.
If you’re trying to make up your mind, any number of experts will tell you the same thing: there’s a time and place when borrowing makes financial sense.
When that time is for you depends on a lot of factors. But generally, you can draw that line by following this basic guide. Check in with this list to make sure you’re borrowing for the right reasons before you apply.
Good Reasons to Borrow Money
- An unexpected auto repair. Everyone should budget for expected upkeep and repairs, but sometimes a trip to the garage costs more than you expect. An online loan can help you cover what you can’t afford. Some online loans work quickly, so you don’t have to wait to repair your vehicle.
- Buying a home. Real estate is one of the biggest expenses most of us will make in our lives. The median house costs roughly $280,000, so it’s also something few of us can afford on our own. A mortgage makes buying a home attainable for the average person.
- Covering an exceptional charge. Occasionally, your utility bills might spike. If it’s something you can’t afford or negotiate down, short term online loans can help you pay it on time. You can learn about your options by checking out installment loans and lines of credit online.
- Going to School. A college degree boosts your earning potential, but it can cost a lot of money upfront. Plenty of people rely on student loans, credit cards, and private personal loans to pay tuition fees.
Bad Reasons to Borrow Money
- Fun but unnecessary shopping. You’re tired of streaming poor-quality bootleg streams when watching the latest blockbuster. So you apply for a personal loan to upgrade your home entertainment system to include cable, streaming subscriptions, a new TV, and a surround sound system.
- Financing a dream wedding. Let’s say you and your partner want to get married on the grounds of a Scottish castle and have the reception elegantly catered for all 100 of your closest friends and family. Rather than making a compromise on the location, catering, or guest list, you take out a cash loan to cover what would be an astronomical bill.
- Taking a trip. Between friends bragging about their travels and digital nomads filling Instagram with pics of their never-ending holiday, it’s hard being the one stuck at home. Hit hard by a case of FOMO, you can convince yourself that putting an exotic trip on credit cards is a good idea.
- Treading water: Imagine something happens to change your living expenses — either you move where the cost of living is more expensive, or you make a career move that pays less. Rather than cutting down on expenses, you borrow money to cover your basic needs every month.
There’s nothing inherently wrong with buying new tech, getting married, or going on a holiday if they give you joy. But wait until you can afford these things.
Otherwise, you’re promising future cash on paying everything back. This could be money better used elsewhere, like in a savings account or retirement fund.
Remember this the next time you’re thinking about borrowing money. With these rules in place, you’ll make the right decision when it comes to your next loan.
See my disclaimer.