Not all debt is bad. Though you might consider it to be the biggest mistake ever when you lie awake at night and think about the overwhelming amount of debt that you need to repay, and the problems that it has caused you. In understanding debt, you will also learn that having debt is necessary in order to build a positive credit score.
Having debt on appreciating assets (things that should gain in value over time) such as a mortgage on your home can be a good thing. The value of your house should be – housing market willing – increasing at a rate that is far greater than the amount of money that you could save during the same amount of time. Think of it this way… if you were to buy a $200,000 house on a 30 year loan, you will, in theory, have $200,000+ “saved”. Would you have been disciplined, or well-off, enough to save $200,000 cash in that time?
First of all, I could not afford to do so. Secondly, I would not be that disciplined.
For most people, a mortgage will be the only type of debt that is worth having because the advantages far outweigh the cost of the debt in the form of interest.
Debt incurred for buying “things” that can’t be regarded as assets (like a house), are not good debt. Unless you are trying to build your credit score.
Credit cards are one of the biggest causes of financial problems in the country, but they too have their uses. Unless you are trying to build your credit score, a credit card is never a good idea. Trust me. Fixing credit card debt is like losing weight; it is so easy to pile on the weight/debt, but it NEVER goes off as quickly as it went on. You can incur thousands of debt on a credit card in one day, but you will pay far more in interest and time to pay it off than it is worth.
When you are trying to rebuild your credit history, or build a credit history if you don’t have any yet, borrow small amounts and ALWAYS make your payments on time.
Getting small amounts of credit card debt and repaying it, can help you to move on to personal loans. Eventually you’ll have the opportunity to get a mortgage to purchase a house (if you don’t already).
So, you can see that in the right circumstances there are great reasons to have debt. It can help you have a more secure financial future. But if you misuse and abuse it, it will RUIN YOUR LIFE. And, no, I am not just being dramatic.
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Disclaimer: I am not a financial professional and don’t play one on tv. The information provided on Single Mom on a Budget.com is my own opinion and should not be construed as fact or advice, and you follow it at your own risk. You are responsible for your own personal finances and should not rely on this site to make the final decision for you. This blog is my means of communicating my experiences to you and to prompt you to think and consider your own situation, but you are 100% responsible for any actions you take. Always consult an attorney or tax professional regarding your specific legal or tax situation.