Good Reasons to Borrow Money
Debt is a lot like food in that too much can cause all sorts of problems, but the right amount can lead to good results. Unfortunately, far too many consumers go overboard when borrowing and end up paying large amounts of interest on their loans. What is smart debt all about? It involves making wise choices and only becoming a borrower for special reasons, like earning a college degree or purchasing a home.
Always avoid impulse borrowing or taking out a loan with no specific purpose in mind. However, if you don’t have enough cash on hand to pay for a car, a vacation, or start a side business, consider applying for enough credit to cover the expense. Shop around for the best interest rates, repayment periods, and other terms. The consumer lending field is highly competitive, so if you’re creditworthy, there is probably a loan out there with your name on it. The following goods and services are usually excellent reasons to become a borrower.
If you don’t yet have a college degree, it’s good to know that education is one of the worthiest reasons to borrow. Fortunately, prospective students can take out Earnest private student loans to cover tuition, textbooks, room, board, fees, and anything else related to earning a four-year degree. Paying for college via an education loan is one of the most common reasons for borrowing. Additionally, diplomas can make a huge difference for job seekers. Hiring agents often exclude non-grads from interview pools, which means the best positions tend to go to degree holders. Attending college can help you start to create the professional network that will be necessary later on in life when it comes time to make major career moves.
For the vast majority of working adults, both single people and married couples, a house represents the single largest investment they’ll ever make. Perhaps that’s why almost no one pays cash for a new home, particularly a first home. The entire mortgage industry has been built around the principle that consumers don’t have enough capital to pay for a house outright. The 30-year mortgage agreement has been around for more than a century and has given people of all income levels the chance to own a house and a small plot of land. Part of understanding what a mortgage is includes understanding that it is a type of debt. Without debt, there would be very few homeowners.
If you need a car to get to and from work but don’t have enough cash to buy one, it makes good sense to work with a bank or dealership to hammer out a payment arrangement. Typical terms include up to six years of monthly payments at a fixed interest rate. Trade-ins and down payments can significantly lower the monthly obligation amount for buyers. Some consumers choose to lease their vehicles instead of buying them. Depending on your financial situation and the type of vehicle you need, leasing can be a wise option.
Unless you have plenty of available capital, it’s usually necessary to take on some debt in order to start a business. Even small enterprises, like a resume writing service or a one-person consulting practice, can include high startup costs. Fortunately, if your company does well, it will be easy to repay the obligation over a year or more. Having these types of loans can also help you to build your business credit with lenders if you pay them back on time and in full. And establishing business credit is something that is going to continue to be important throughout the lifespan of your venture.
Borrowing money to pay back borrowed money might seem counterintuitive but it all comes down to your total debts, and the interest you are paying on them. In some cases, you might have multiple credit card debts or other various loans you owe that all come with their own individual interest rates. What this means is that the money you pay each month on each of these payments is also inclusive of the interest accrued. Consolidating your debts into one payment means you will have a simplified way to get your outstanding debts paid off. The interest rate on a debt consolidation loan is likely going to be less than what your total interest would have been if you kept everything individual. When more of your money is going toward the principal, your debts will shrink more quicker.