Debt, often portrayed as a financial pitfall, can surprisingly be a beneficial tool if used wisely. Debt is usually equated to credit card misuse and overspending on unaffordable items, but this portrayal only represents one facet of debt – the detrimental one.
Debt, in reality, plays an essential role in buying significant assets like houses, cars, or paying for education, which may not be possible merely through savings. Therefore, debt, when understood and spent thoughtfully, can be leveraged in one’s favor.
Here are a few ways how you can strategically utilize debt to your advantage:
1. ADVANCING YOUR EDUCATION
As ideal as scholarships or company-funded education sound, most people end up paying for their own education. In today’s world, education is almost a necessity for most careers. Fortunately, student loans provide a feasible option to finance one’s education. Although student loan debt often gets a bad rap, it can be seen as an investment in your future for better job prospects and higher income. Generally, the loan repayment kick-starts post-graduation, making the debt more manageable.
2. BUILDING POSITIVE CREDIT HISTORY
A good credit score is necessary for renting or buying a house, or purchasing a car. To establish a positive credit history, you need to have some kind of debt. Using credit cards wisely or taking out small loans and repaying them on time can help build your credit score. However, resorting to impulse buying and gathering unaffordable debt should be avoided.
3. EARNING INTEREST ON YOUR ACCOUNTS
Savings accounts are a great way to accumulate interest over time. However, unplanned expenses may arise, forcing you to dig into these savings. Credit cards can be useful for such purchases, allowing your savings to stay untouched and continue growing. It’s essential to pay off your credit card balance promptly to avoid excessive interest.
4. SUPPORTING BUSINESS START-UP
If launching your own business is part of your career plan, incurring some debt is often necessary. Business loans can enable you to make required purchases and get your business off the ground, bringing in revenue sooner than if you had to save up the necessary capital yourself.
5. ACQUIRING PROPERTY
Property acquisition, especially buying a home, often requires the assistance of a mortgage. A home mortgage provides tangible benefits like tax deductible interest and the building of equity over time. The home’s value may even appreciate over time, resulting in potential profit if you decide to sell.
Debt, though often painted in a negative light, is a critical instrument to kick-start your life, whether it’s for an education, a car, or a home. Indeed, all debts should be eventually repaid, but acquiring certain types of “good” debt can position you for a head start in life. When used in the right manner, debt can be leveraged to your advantage.
What are your experiences with beneficial debt? Any tips you’d like to share?
