In the past, finance gurus told people to avoid borrowing. It would add to their living costs, they said, and cut into their wealth.
But over time, it became clear that in some situations, temporarily using other people’s money was a good idea. Borrowing seemed to enhance their material success, not detract from it.
But, unfortunately, the average Joe still thinks that using other people’s money is a bad idea. And that’s a myth that needs dispelling. There’s a big difference between good debt and bad debt.
In this post, we take a look at why borrowing is sometimes a good idea and how to do it right.
It Helps You Get On The Housing Ladder
Banks and building societies might call home loans “mortgages” but they are still a form of borrowing. When you buy a property, you put down some of the money (usually a 20 percent deposit), and then the lender provides the rest.
If this didn’t happen, saving up for a home would be almost impossible. People would spend their entire lives renting. But when you have a mortgage to pay, it forces you to be disciplined. You know that every month, you have to repay the bank a certain amount of money and build equity in your home. If you don’t, you could lose it altogether. Over time, you build equity. And eventually, you own your home outright.
It Allows You To Fix Things When They Go Wrong
Sometimes, things go wrong in life. Boilers can break down on the eve of the holiday season. The transmission on your car can fail. And falling trees close to your home can damage your roof.
Most people put away savings for these eventualities, but if you don’t, your only choice is to borrow. For instance, if your car breaks down and you rely on it for work, it makes sense to borrow. You need to repair it to can continue earning money.
The same goes for roof repairs. If you don’t fix the problem now, it will just get worse and worse.
Outlets like B3 Cash Solutions typically recommend that people use short-term loans for these kinds of eventualities. So long as the spending is necessary, not frivolous, it makes sense.
It Allows You To Pay Off Expensive Debt
While today’s interest rates are phenomenally low, not all debt is cheap. Sometimes, certain types of borrowing can force you to pay high rates of interest to lenders every month. And this, in turn, can make you worse off.
For that reason, a lot of people take out consolidated loans – a financial technique available to the vast majority of people. The way these work is simple. A lender agrees to pay off all of your existing debts and then consolidates whatever they spend into a single loan. You then pay a fixed amount every month. Consolidated loans usually have much lower interest rates than standard borrowing products, making them much more manageable.
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