| Situations Where Debt is Good | |
Being debt free is the ultimate financial goal for most people. There are many articles advising us how to get out of debt, that we may automatically assume that debt is a bad thing. However, not all borrowing is bad. There are many occasions when debt can actually be a good thing, here are a few examples. 1. Buying a home Carefully consider how much you can afford to put down and how much of a loan you can carry. The more you put down, the less you'll owe and the less you'll pay in interest over time. 2. Student loans It is unwise to borrow against your home to cover for your children’s tuition. If you run into financial difficulties down the road, you may risk losing your home. Your best bet is to save what you can for your kids' educations without compromising your own financial health. Then let your kids borrow what you can't provide, especially if they are eligible for a government-backed student loans. Such loans have guaranteed low rates; no interest payments are due until after graduation; and interest paid is tax-deductible under certain circumstances. 4. Loans for investments Avoiding debt at any cost is not wise if it means depleting your cash reserves for emergencies. If the debt is used to purchase an asset, make sure that the utility or financial return from the asset is higher than the cost of debt. It is also important to ensure that you are not overleveraged where your borrowings exceed your assets or where you have trouble servicing the loans. Any debt which is taken after you are overleveraged is not advisable, regardless of its purpose. |
Situations Where Debt is Good
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Submitted by king king on October 4, 2018 - 8:13pm.
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