Today, I’ll be writing about debt. There are two major schools of thought about debt, on one side is the view that debt should be avoided like the plague, on the other side is the view that debt can be good in some circumstances and can be used as leverage to build wealth. As for me, I tend to lean more toward the view of avoiding debt with some caveats.
Here are my reasons for avoiding debt:
1). Increased stress – Having the feeling of owing somebody money is never a good feeling. There’s the stress of interest penalties on your credit card bill if you don’t pay the entire balance. There’s also the calls from creditors asking about payments. Stress can wreak havoc on you physically and mentally. Here’s a link to an article from WebMD on the effects of stress on the body. Life is already stressful as it is with appointments, family, relationships, paying bills, and work; why need that additional stress of debt?
2). Puts a delay on reaching your financial goals – If your goal is to save for retirement, a vacation, or a down payment for a house, having to pay off debt means putting less money to your goals. It’s like trying to run up a hill with added weight on you; it slows you down and tires you out.
3). Negatively affect your credit score – If don’t make your payments on time or handle credit cards in a responsible way, it can do damage to your credit score. This can limit the amount of money you can borrow as well as increase the interest rate on the loan.
While I do lean more toward the view of avoiding debt, I do have some caveats.
1). Using debt for education – I had to take on school loans when I went to college. I kept in my mind the reality that I had to pay off my loan after I graduate from college so I was careful not to borrow too much. I also did some work-study jobs in school and worked at a movie theater one summer during college. Getting a bachelor’s degree did open doors for me to land a job so it was a good investment.
2). Using debt for a house – For many people, paying for a house in cash simply isn’t possible; especially if you live in a metropolitan area like me in Los Angeles. However, finding a mortgage that fits your income range as well as paying off your other debts before purchasing a house are important factors. Renting is a very viable option until you are financially ready to purchase a house.
3). Credit cards can be good – Some offer rewards points that can be used to purchase items or gift cards, some offer cash back, and most offer insurance protection on purchases as well as a free credit score; it’s also useful to build credit if used responsibly. If your finances are in order and you can pay the entire balance each month, credit cards can be helpful. However, if you are deep in debt and aren’t in control of your finances, credit cards can push you further in debt and make your finances even more out of control. Please handle with care and be honest with yourself if you can really handle credit cards responsibly.