Some people may believe that debt is always bad and should try to get rid of it through a debt consolidation loan or another strategy. However, sometimes debt can help you meet your financial goals. While your situation is unique, there are times when going into debt may be worthwhile.
Home Ownership
Owning a home is part of the American dream for some. You’ll likely need a mortgage if you’re ready to become a homeowner. Before you commit to one, shop around and consider conventional and government-backed loans to help find the right option depending on your financial needs.
In addition, it can help to save up a substantial down payment, even if your loan doesn’t require one, as doing so can lower your loan amount. Don’t forget to consider other expenses that come with homeownership, like property taxes and maintenance.
Home Improvement Projects
Speaking of home ownership, some home improvement projects may be worth going into debt for. However, not all home improvements are created equal, so make sure you choose the ones that will give you the greatest return on your investment.
Remodeling your kitchen, finishing your basement, and adding a deck or patio are a few examples of improvements that can increase your home value and pay off in the event you sell your home in the future.
Real Estate Investments
While it may be tempting to take out a loan so you can invest in the stock market, this isn’t always a safe option. Here’s why: Market downturns are bound to pop up when you least expect them and can interfere with your investment goals.
Instead, you might want to invest in real estate, like a rental property. Just make sure you’re confident you’ll get a good return on your investment.
Vehicles
Unless you live in a major city, there’s a good chance you need a vehicle. Without one, it can be challenging to go to work, run errands, attend social events, and more.
Since cars, trucks, and SUVs cost thousands or even tens of thousands of dollars, you’ll likely need a car loan to pay for one. While it may be tempting to sign the dotted line on a loan from a dealer, explore all your options to find the most affordable option.
Business Ventures
If you’re ready to leave the 9-to-5 grind behind you and work for yourself, investing in a business might be beneficial. Chances are you’ll need capital to cover startup costs, equipment, inventory, marketing, payroll, and other expenses.
Develop a strong business plan and make sure your credit score is in good shape to lock in the best offers on business loans. Also, make sure you have a hefty emergency fund because you never know how you’ll do the first few months or years in business.
Emergencies
Sometimes life happens leaving you with an expense you never saw coming. Going into debt might be necessary if your car breaks down or you need to pay out-of-pocket for a medical procedure.
This is particularly true if you don’t have enough money in your emergency fund or don’t want to use up your savings. As long as you repay what you borrow on time, a loan or credit card can help you out during a difficult time.
Bottom Line
Contrary to popular belief, there is such a thing as good debt. In fact, some types of debt may be just what you need to achieve a life goal, enjoy a financially secure future, or pay for an unexpected event.
Just make sure you don’t overborrow or you may find yourself in a more difficult financial situation than where you started.
Notice: Information provided in this article is for information purposes only and does not necessarily reflect the views of digitaledge.org/ or its employees.
Please be sure to consult your financial advisor about your financial circumstances and options. This site may receive compensation from advertisers for links to third-party websites.
