When is Taking on More Debt a Good Idea?

Cash loan

More often than not, the advice we receive is that debt is bad. Though most adults are indebted in one way or the other, we view having debt as a type of personal finance failure. Undoubtedly, being nose deep in debt is bad for you, your family, and your credit score. But is it wise to categorize all types of debt as “bad debt”?

Understanding Good Debt Vs. Bad Debt

Consider the types of loans you may borrow in your life. Not all of these will affect your financial future similarly. Borrowing a hundred bucks from a friend in an emergency is different to taking out a housing mortgage. As there are different kinds of debts, it’s important to distinguish between those that help you versus those that ruin your financial future.

At first, it can be hard to fathom how debt can actually be beneficial. It all boils down to why you borrowed money in the first place. Ask yourself this question: did the loan you took out benefit you in a manner that helped you improve your life?

Consider a student loan. A vast majority of Americans graduate from college with hefty student loan debt. Let’s leave aside the cost of education for the moment, which is a separate topic altogether. Student debt is a huge financial burden for new graduates. But it’s also something that allows young people to receive a higher education. Data clearly points to a positive correlation between higher education and higher income levels.

Imagine someone who doesn’t take out a student loan to go to business school or law school. Their future earning potential with just a GED would very likely not reach the upper rungs. But with a degree, you can improve your ability to earn, pay back the loan, and enjoy a career that supports you for the rest of your life.

When to Take on More Debt, and When Not to

Certain loans like education loans, mortgages, or business loans can cause you to be indebted, but for a good cause. These loans provide you with something essential, such as permanent shelter. On the other side of this spectrum are the bad loans, which do not offer borrowers any tangible benefit.

Bad loans do not increase your income potential or offer you similar benefits. Rather, these loans entrap you in a cycle of borrowing and repaying. Think payday loans for example, which are attached to massive interest rates. Taking out a payday loan to buy groceries or a new TV would only put you in more debt. The groceries or the TV doesn’t increase in value over time, but the amount of debt you are in would.

Assessing All Your Borrowing Options

The way you borrow money can determine whether you take on good debt or bad debt. If you are borrowing money from an unlicensed local loan shark, you would certainly be in trouble. When you are in need of a loan, research all your options well. You can use a service like Loanable to go through a variety of options available. Considering multiple options will help you avoid bad debt and make you rely on respectable services.

You can also reach out to local credit unions or debt help groups for assistance. If possible, contact a lawyer before you sign a loan contract to actually understand what you are getting into.

You should aim to avoid bad debts that only provide you with assets that depreciate in value over time, like cars, gadgets, and similar items. Good debt provides you with things that only increase in value over time or never loses value, such as an education. In life, avoid all bad debts, and wisely take on good debt if necessary.

Proven Budget Ideas For Retirement

Retirement budget

The mechanics of budget creation are fairly simple: track how much money is coming in and how much is going out by making an inventory of income and expenses.

Even if you’re not a number’s person and prefer a big picture view of your finances rather than fuss with details, you can use a budget spreadsheet or software to organize your budget. In the worst-case scenario, you can even ask someone to do it for you.

The Budgeting Challenge

If budgeting is easy to do and can help you organize your finances, then why don’t most people do it?

It’s for psychological reasons. We don’t want to look at our own spending habits.

Money disappears from your life when you pick up bagels at the grocery store, when you buy a sandwich for lunch at the corner deli, and when you gas up the car to go to the movie house, where you might buy some buttered popcorn and soda.

What’s more, when you think about it, the money that flies out of your pocket in a matter of minutes may have taken you an hour or more to make.

Unfortunately, when you make a budget, you need to know the truth; and although, it will set you free from the urge to overspend on silly things, it’s still painful to face up to our mistakes. In short, when you think about how difficult it is to make money and how easy it is to spend it just to get through the day, it’s discouraging and depressing.

The way to overcome procrastination when it comes to making a budget is to ask a question:

What would you do if you were an efficient saver?

A whole new world of possibilities would open up for you. You would be able to contribute to your 401 (k), your accumulating savings would benefit from the multiplying effects of compound interest, and you would be able to invest a part of what you earn to buy shares and earn stock dividends.

Start with Life Insurance

You can think of life insurance as a way of budgeting for your family’s future. Think of the premiums you pay as the equivalent of putting money away every month into a savings account.

Getting life insurance is making financial plans for your children and grandchildren. When it comes to selecting a provider, one life insurance company that you may want to consider is Transamerica.

Transamerica Life Insurance company has built its reputation over more than a century. Amadeo Giannini started the company in 1904 and it began to flourish two years later when he offered loans to the residents of the San Francisco after the huge earthquake on the guarantee of a handshake. PolicyZip offers an in-depth review on the company’s insurance plans.

What to Do with Extra Money

You don’t always have to earn every dollar that you put into your bank account.

Sometimes you just receive free money; that is, money that did not require your labor. It can come in all sorts of ways—a small lottery payout, a tax refund, a salary bonus, a financial bequest given by will, a gift from a generous friend or relative.

Unfortunately, since the money did not cost you time nor energy, you might celebrate with a new designer jacket, a night out on the town, or even a vacation.

Extra income should not be treated like found money. Treat this money as if you had spent years saving. Increase your contribution to your retirement fund. Buy a stock. Start an online business. Use the money to make more money.

In conclusion, think of budgeting as a powerful tool to launch great future for yourself and your family.

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