Little Known Ways of How Debt Can Be a Good Thing

In some situations, taking on debt can actually be one of the best things that you can do for yourself or your family – provided it is the good kind. Examples of good debt include student loans, car loans and home loans. Let me explain…

Student Loans

Taking out a student loan to complete a college degree is one of the best investments that you can make in yourself and your long-term financial situation. According to the US Census Bureau, those who have earned a bachelors degree, on average, earn $51,206 a year. Those who have completed only high school earn, on average, $27,915.

There is one significant caveat though to taking out a student loan to finance your education. You want to ensure that the loans you take out do not become over burdensome once you graduate. This can be accomplished by attending a school that has a good program and moderately priced tuition, perhaps a local state school, as opposed to attending an extremely expensive college or university.

Car Loans

A car loan can actually be a good debt, especially if it enables you to have reliable transportation to a job that pays more than you would otherwise be able to secure locally. However, there are several caveats.

You do not want to purchase a car that is more than you can afford on your current budget, for example a new Nissan when you may only be able to afford a Kia payment. Second, many people in the market for a new car are not aware that the value of their new car drops on average 20% once they drive it off the lot, meaning they now owe more than it’s worth.

Purchasing a used vehicle with a good reputation, such as a Toyota or Honda can actually be a much better investment, especially these days where warranties can extend up to 100k miles.

Home Loans

Even in today’s market, buying your own home is a great investment in your future – as long as you plan to live in your home for a number of years, and not access any of the equity that you may accumulate unless in an emergency.

Purchasing a home instead of renting makes sense because you are actually paying off a home loan as opposed to making your landlord richer. However, it is important to realize that your first home should be a starter home or condo, one that you can comfortably afford on your current income, as opposed to the type of home that you hope to live in eventually.

As with any prudent financial planning (with the exception of student loans) make sure that you save up a down payment on any car or home, so that you are not financing 100% of your purchase, an option that is becoming increasingly hard to find as well, in this economic environment.

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