Can Debt Be Good?
Most of us operate under the idea that all debt is bad and best avoided at all costs. The truth is, however, that there are some debts that can be good and even helpful. Here are just some of the ways in which debt can be beneficial.
Did you know that having debt can actually raise your credit score? It’s true! When you take on a debt and work diligently to pay it off, it shows future creditors–and the credit bureaus to whom they report–that you know how to handle credit responsibly. This makes you look better to future landlords, mortgage lenders, car dealerships, and even employers. That’s right, employers. You do know that many employers now check applicants’ credit scores before deciding whether or not to hire someone, right?
Emergencies Aren’t So Emergent
Having an emergency fund is definitely a good idea. It is a goal you should work toward as soon as you start earning an income. This way, when you get hit with an unexpected expense you don’t have to worry about it throwing your entire financial stability out of whack. Sometimes, though, you might not have enough built up in your emergency fund to cover whatever bill you’ve unexpectedly incurred. If you have good credit, you should be able to take out a loan to help cover that expense.
If the amount you need is large, you’ll likely be able to get a bank loan no problem. But if you don’t need that much, you’d be better off with one of the alternative payday loans online that are out there. Why? Because alternative loans offer smaller loans while most banks only lend in amounts over $3K. If you only need $1500, for example, you run the risk of borrowing more than you need, which carries a risk of spending more than you can afford along with it. Alternative loans are also approved more quickly than traditional bank loans.
Using credit to make major purchases can help you build equity. It’s true that “equity” is usually used to refer to the value home ownership adds to a person’s investment portfolio. It is also true that home ownership is not the only type of investment that appreciates in value. It’s difficult to think of smaller items as investments but they can be! For example, jewelry often appreciates in value over time, as do well-made pieces of furniture, art, and other collectibles. The nice thing about these types of purchases is that you don’t necessarily need large loans or extensive lines of credit to afford them.
Our parents and grandparents were able to work their way through school by taking on part-time jobs. This isn’t the case anymore. Today, if you aren’t able to pay for school outright, you are going to have to resign yourself to taking on debt and often in large quantities. The good news is that educational costs are a good sort of debt. For one thing, you won’t have to begin paying it back right away. Most student loans don’t come due until a few months after the student graduates or leaves school. For another, the interest rates on student loans are much smaller than on traditional personal loans or lines of credit. Finally, a good education is an investment in your future and can guarantee you higher wages and make you easier to employ.
Even if you don’t plan on going to a 4-year school, many vocational and trade schools require students to take on some debt if they want to finish their programs in a timely manner. What makes this expense worth it is that there are more opportunities for high-earning employment in trade fields than there tend to be in the humanities and “higher” sciences.
Now, not all kinds of debts are good. And, if you want to be sure that you are financially successful, it is a good idea to learn the difference between good and bad debts. Once you do this, you’ll know which types of debt to avoid and increase your chances of financial success!