This is a good article showing that debt is not bad after all. Everyone has debts - businessmen, investors, millionaires, etc. Choosing the kind of debt that will help us build our money is a matter of choice. This is all in our will and how we will act upon it.
Nobody likes to borrow money from someone else, but we all have or
will face a situation in life where we will need some extra cash.
While borrowing from a friend or family member has less profound
consequences on your creditworthiness, there can be a difference with
the type of debt you owe a financial institution.
When a bank checks your credit history to see what kinds of debts you
have, they will look at some debts more favorably than others. Not all
debts are equal!
If you are working your way to pay off your debt, it would do you
good to first understand the difference between a good debt and a bad
debt.
(Photo: Youtube)
Good Debt
Debt is considered to be 'good' if it is a sensible investment in
your financial future or helps you to buy wealth-building assets.
There is a clear and specific reason for taking up the loan and a
realistic repayment schedule, and should ideally help you generate an
income over time.
Here are some examples of a 'positive' debt:
(Photo: DCU.org)
Education Loan
Taking a student loan to pay for further education will help you in
the long run as you typically get paid more in your future employment.
(Photo: Hamara Bank)
Property Loan
A home loan is perhaps one of the biggest loans you take on in your life time and it can be daunting to have to repay so much money.
However, buying your own property can also be one of your greatest asset purchases in your life.
You can earn from rental property while still servicing your debt, or
earn capital gains as property assets are likely to grow in value over
time.
(Photo IndiaMart)
Business Loan
While this may not be considered good debt, borrowing money to start
or expand a business is generally seen as a good idea, especially if
business is booming.
Being a business owner means you may have to borrow capital to hire
new employees, buy new equipment, manufacture your new invention or
invest in marketing.
It helps to have a goal in mind with a realistic business projection so that your vision does not crumble in a pile of debt.
(Photo: Fica.vn)
Bad Debt
Bad debts are those that are unnecessary and unsustainable. It is
used to buy items that you do not need and often fall in value, or it
carries huge financial charges and incur high interest rates which make
repayment difficult.
Here are some examples of things you should think seriously about getting into debt for:
(Photo: DumbLittleMan.com)
Credit Card Debt
According to the Credit Bureau of Singapore, about one in five credit cardholders has been rolling his debt for three months.
Credit card debt piles up faster than you realise and is often used to pay for things that you buy on impulse rather than need.
To avoid credit card debt, make sure to pay off the bill in full each month!
It is strongly recommended that you set up Giro deduction to ensure you don't miss any credit card payments. When used correctly, credit cards can even save you money by giving you discounts, cashback or other rewards.
This ebook will show you how to Break Free from a credit card debt. Find out how. Click HERE.
(Photo: GoCompare.com)
Personal Loans
Whatever the reason for taking a personal loan,
you should think twice due to its high interest payments. Be it a loan
from a bank or a licensed-moneylender, borrowing at high interest rates
is just not worth it.
Examine why you need that money in the first place, and whether there
are ways to mitigate the urgency of the loan with advanced budgeting or
setting up a regular savings account.
Seek help with credit counselling if there is a particular problem.
(Photo: LiveMint.com)
Car Loans
Cars are often considered a liability more than an asset as its value
decreases over time. Other than paying for the cost of car, there are
hidden costs such as maintenance, road taxes, petrol and car insurance
to take care of.
Public transport is easily available in Singapore compared to bigger
countries, so make use of it unless you are certain you can afford the
luxury of owning a private car!
Conclusion: Before you even ask for the application form, think hard first if the loan you are intending to get will help you grow your money later or it is something that makes you poorer overtime. After all, it's your name, it's your record that is on the line.
In the Philippines, there are government loans that are easy and tempting to get. For example, SSS Salary Loan, Pag-Ibig Loan, GSIS Loan (for government employees). Of course, you have all the right to apply for these. However, if you are only getting these loans to buy a new outfit, make-up, signature bags, a gadget, shoes, computer, appliance, then it became a bad debt. You can use these loans to pay for your mortgage, you can set the money aside to pay for the next tuition or to pay for the existing bad debts. For me, the best way to use loans - is to invest.
The Choice is Always Yours. After all, Your Loan, You Decide!
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