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The Wise Debt: Borrowing Money Responsibly

The Wise Debt: Borrowing Money Responsibly

Debt is defined as the amount that one owes to a person, bank, lending institution or a company. There are two kinds of debts: one is one incurred to fund investment and the consumer debt; which is incurred on purchase of goods that are either consumable or depreciate in value. While we grow up with the notion that borrowing money should always be avoided, totally avoiding loans could hamper opportunities for financial growth. Debt, especially a mindfully planned one can help you achieve life’s aspirations without the burden of jeopardizing relationships and future plans.

Consumer debt in particular, has been analyzed as a means to finance domestic expenditures such as schooling and car loans in during the earlier stage in their lives and eventually paying debt during their higher-earning periods. The most typical forms of consumer debt are credit card debts and payday loan. While consumer debt is not bad per se, it is recommended that it should be less than 20 percent of the individuals take-home pay. Moreover, long-term consumer debt is considered impractical and unwise. One concrete example is incurring high-interest consumer debt for years in order to buy gadgets. Some costumers would fall into the trap of excessive loaning thereby accumulating debt significantly higher that their net worth. These unwise borrowing of money reflects desire for instant gratification without being mindful of the consequences. Your financial problem would even worsen if a sudden event struck you or your family, such as hospitalization.

However, another kind of debt is debt incurred to expand or build a business, or finance various forms of investment. Financial advisers such as Robert Kiyasaki encourages taking on debt if it used to start a small business or pay off real estate mortgages. Money that individuals, businesses and even national governments borrow to fund various projects has become truly vital in the global economy’s lifeblood. More importantly, these wise loans were able to provide financial security for millions of people by providing livelihood. It is totally okay to the loan if your income would allow you to pay it and consequently buy basic necessities. Carefully compute if the loan payoff, savings and monthly expenses would be covered by your income. If not, do not push through with it unless you are willing to give up a part of your expenses temporarily. Loaning can also work to your advantage if it would allow you to gain more in the near future. Examples of which is taking that MBA/MA degree, expanding your business or buying equities. Ponder upon if these loans would be worth it. Gains beyond finances should be considered too. After all, not every decision is an economic one. Go ahead and take that personal loan if it means securing the health care and education plan of your children.

Wise Lending Also Means finding the Right Lender

Having multiple card loans can be difficult to pay off in the long run. It is not helping that missing monthly payments would result to high penalty interest; which would even approach to 30-35% annually. Payday loans would also be extremely expensive, as it would carry an effective APR of 350-500%. Others are not mindful how it could hurt their finances because of the easy processing they offer. More often than not, hidden charges are integrated in these kinds of loans. Private lenders, on the other hand is a safer way to borrow money. They secure lower interest rates thus making your borrowing decision more prudent. Click here to find a private lender online.

See Also

House Mortgages vs Renting

The standard 15-30 year fixed-rate mortgages would allow your family to save more instead of renting a house or flat. In addition, the bulk would be divided into a decade or three thus making it more reasonable. Mortgages are a good kind of loan for it enables families or individuals to build equity (especially in urban and sub-urban areas) while strengthening your credit reputation.

In conclusion, contrary to popular debt is not your evil enemy. Rather, it is a major responsibility that requires discipline, sacrifice and careful examination of its payment terms. Lastly, honor your obligations to your creditors as not to jeopardize your future goals and peace of mind.

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