4 Types of Debt That Can Actually Be Good For You

4 Types of Debt That Can Actually Be Good For You

Most people do not like hearing the dreaded D-word. The term “debt” can inspire a lot of stress and anxiety in many people. Whether it is owing money to your friends or the government, no one likes being reminded that you are indebted to another entity. However, what if there were actually kinds of debt

Most people do not like hearing the dreaded D-word. The term “debt” can inspire a lot of stress and anxiety in many people. Whether it is owing money to your friends or the government, no one likes being reminded that you are indebted to another entity. However, what if there were actually kinds of debt that actually be good for you? Of course, debt is still debt. You have to pay it back eventually, but if you invest in a worthy cause, it can be of some benefit to you. Here are some kinds of debt that can be good for you.

1. Student Loans

As of 2018, the United States has over 1.5 trillion dollars worth of outstanding student loan debt. The bottom line is that college has become incredibly expensive, and there are many students who graduate with a large debt bill attached to their name. However, investing all of that money into a proper education can make the debt worth it. This means that if you are looking for an education that will provide you employment with a suitable income, it will give you the ability to pay it back rather quickly. Popular careers such as those in health care delivery, engineering, and other high paying jobs will give you the ease of mind of not having to pay the debt off over an extended period of time.

This is where adequate research plays an important role. Depending on what you are studying, you have to at least predict how much you will be able to make with your degree. If you take out a lot of money for a job that does not pay more than others, then you will be looking at a longer period of repayments or income-based monthly payments. If you graduate with a larger sum of debt, you will also have to adjust your lifestyle a bit, meaning that you should only spend for yourself what is absolutely essential, so that you can pay the debt off as quickly as you can.

Numerous studies suggest that those with a college education will be more likely to find employment than those who do not. Over the long-term, you will be better off if you have a college degree, because it provides valuable credentials to your name. But be forewarned at the kind of loans that you take out and what your needs are. The repayment options from federal and private loans differ, and interest rates will vary. Do your due diligence, and be wise with your money, but a college degree can be worth it f you are wise.

2. Mortgage

Owning a house is a huge accomplishment, but it is a very expensive investment. That being said, owning a home is something that can help you build your net worth and equity. Getting a loan on property can be used to your advantage because debt can be used to purchase other properties that can generate a steady inflow of cash through renters. The best part? Your equity can grow with each monthly through someone else’s money.

You should start very small when it comes to investing in property. Ensuring that you can handle payments comfortably and making sure the market is good would behoove you before you take on that debt. There are also three common reasons why a mortgage is commonly referred to as good debt.

First, very few Americans are able to put down the necessary amount of cash without getting a loan to cover the cost. Second, unlike utilizing a credit card for personal leisures and delights, you will be spending more time in your house than anywhere else. Finally, home prices have a historical trend of going up. This means it will be a profitable investment. That being said, once again, those reasons do not matter if you cannot meet the monthly payment requirements.

3. Auto Loans

There are any that seem to be against the idea of borrowing a car and labeling it as good debt. But it does, sometimes, make sense to invest in a vehicle. Remember that investment can be good debt.

However, you should not fall into the trap of getting any car that may be expensive or what may set you back. Look for the cheapest car that is available which can get you to work. You will most certainly have to invest in a car if you live in areas where public transportation is unavailable.

It is very good to think strategically when it comes to auto loans. Keep your total auto costs, involving your car loan payment within 20% of your pay. Also, shoot for loan terms to be within four years, with a down payment of around 20%. You also need to take action and consider refinancing or trading in a car you cannot afford to help you manage other expenses.

4. Business Debt

Similar to student loans, investing in a business can be a potentially fruitful venture that will land you long-term wealth and income for an extended period of time. Each business have unique needs. One of the most important things that a business needs to get off the ground is capital so that they can cover expenses that is required to maintain the business. This is why you will have to be very careful with this kind of debt.

Much like anything else you will need, you have to be extremely realistic about what you require to get started and do not borrow anything more than is necessary. As you start to bring in more and more revenue, you can use that money to expand your business even further. In time, once you start to gain more income, you can pay down all of your debt and shift your focus to something everyone should want to do. That would be to build wealth.

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