Debts are harmful; it is wise to stay away from them. Most of us are working hard to erase the debt blues from our lives.
But the reality is, without going into debt, you will not be able to achieve some goals. Thus, many people are not sure whether or not to accumulate debt.
Well, for most of the people, debt is now a fact of life. So, you just need to make yourself financially prepare to pay off the debt.
The thumb rule is "If you don't have the money, don't buy. Once you take out a loan to buy something, then pay it off honestly."
However, sometimes, it is worth to fall into debts. Take a look at this article to know when is it ok to invite debt in life?
1. Debt is ok when you are financing your education
The Bureau of Labor Statistics revealed that a person, who has a bachelor degree, earns a median 67% more in a week than a person who has a high school diploma.
However, the cost of education is rising rapidly. According to Experian, 7 out of 10 students are in debt to fund their graduation.
The post-secondary education or degree helps students to pay off their student loan debt burden over time.
Moreover, accumulating student loan debt is ok because it is a flexible form of debt. You can renegotiate the payment agreement based on your income.
There are some scenarios wherein your student loan debt can be forgiven. Or, you can also get grants to pay off your student loan debt.
2. Debt is ok when you are financing a home
Buying a home is one of the best reasons you can fall into debt. Most of the people don't have enough money to buy a home in cash.
Remember, the better your credit score, the better interest rate you will get.
As per the MyFICO.com, "A top credit score of between 760 and 850 would get you an average interest rate of 3.11% for a 30-year fixed-rate loan and a much worse score, between 620 and 639, would get you 4.70%”.
However, before taking out a home loan, you should be financially prepared to manage it properly.
If you can manage the higher monthly payments of a 15-year loan, you will be the owner of the house sooner while paying less in interest payments.
Some people choose the 30-year loan with lower monthly payments as well.
An adjustable-rate mortgage also comes with lower interest rate and a good choice for you if you won’t stay in the home for a long time.
If you know you will stay in the home for decades, then go for a fixed rate mortgage.
3. Debt is ok when you are paying off your bad debt
Borrowing a loan to consolidate some painful debts makes sense.
One disadvantage of this option is that you are using your home as a collateral, which can be at risk as you may lose the house if you don’t pay off the debt.
Make sure you pay off the entire balance within the offer period.
However, make sure you don't miss a single monthly payment. Taking out a new loan to erase the high-interest debt is considered as a smart financial move.
Lastly, debt is undoubtedly a financial burden. So, just because the bank is offering a good term or you are qualifying for a certain offer doesn't mean you should grab it.
No debts are bad if you pay them off within the time.
