05 Nov How to use debt to your advantage?
No one likes to find himself in debt because it’s like digging a hole without a way of getting out. But, here are some examples of how debt can be used to your advantage, or what we call the “good debts“
Use debts to buy assets
Taking out a mortgage to purchase a physical asset is a good thing. The land or home you acquire will only increase in value over time. So, even if you get into debt because of this purchase, it becomes more of an investment because of the time factor involved.
It would be illogical and impractical to use up all your savings just to place an ideal location under your name or under your corporation’s name. Even maintenance costs can be seen as a way of incurring debt, but having a better payoff in the long run. You need to repair your roof and it may cost quite a bit now, but the returns will come back in a couple of years or more.
Incurring student debt for a higher purpose
The ideal scenario would be to have won the lottery, and you would be able to pay for your education right off the bat. Or you were able to secure a scholarship grant and have your tuition worries settled.
But, that would be far from the ideal when aspiring to attain a Master’s degree or even putting in the work towards a doctorate. What options are available for those hoping to advance their careers through such educational opportunities? That’s where student loans come in.
The strategy here is to get into debt so you can get a degree. This degree will get you promoted and, when you’re able, you should pay off your student loans eventually.
Federal student loans give you more leeway with regard to repayment because the grace period allows you to obtain your degree first. But, you must stay in school to maintain this effect.
There are also other available student loans with flexible payment plans. You won’t be charged exorbitant interest and fees until you are able to bring up your income to a certain level. The loan agreement understands that as your income grows, you are able to pay back your loan more and more. Arrangements can be made to consolidate this.
Create good credit by using debt
Your credit history will determine your worthiness and reliability in paying off your loan. This will become more crucial should you intend to purchase a home or a vehicle.
Settling your credit card balances at the end of the month by paying the entire balance may seem like the right way to go. But, that makes you “credit invisible”. Since you paid off everything, there will be some hesitation with lenders because they are not able to view any credit history. That’s where you need debt to come to the rescue.
Do not just keep on buying stuff for the sake of just buying stuff. The purpose here is to create a credit history through charging items on credit and paying less than the balance only for a few months. Look for a 0% interest credit card so you can build up your credit without having to incur any additional interest. You are showing potential lenders that you can take on a loan and you are able to pay it off in a timely manner.
Use debt to begin a business or investments
Starting a business comes at a price. The reality is you have to invest in special equipment, build up an inventory, and project your operating expenses without the guarantee of any sales coming in at the moment. You’ll also need to assign a salary for yourself, but this only happens once you are able to settle any and all other business expenditures. Such is the challenge of entering entrepreneurship.
Although some claim to have luckily started a business without taking a loan, a short-term business loan may give you some breathing space so that some expenses can be covered by this instrument. Acquiring this loan can assist you in getting your business on track so that you are able to earn back your money in good time.
The deterrent for most people in getting into business is the fact that you have to consider taking out a loan. Waiting for enough money to be generated by sales may slow down your climb to the success ladder. Debt in this manner can be used strategically because you are hoping to lessen the gap in achieving solvency without sacrificing quality. There will most likely be a tax-deductible carrier on the loan because this deals mainly with helping to increase your business growth.
Use debt to buy or acquire real estate
The strategic way of using debt by taking out a mortgage has been discussed earlier. When you use debt to acquire property which generates income through leasing agreements and such, you’re well on your way to earning your first of many millions.
Income property acquired through the interest paid on mortgage loans has a tax-deductible benefit. There’s quite a number of individuals who take out a loan to buy a house, renovate it, then flip it. The profit they earn gets used to purchase more houses with potential and the cycle repeats itself. Multiple apartment houses owned by these entrepreneurs have been developed with this hardworking practice.
There can be an upside to debt
There are various reference materials on the Internet that can better inform you about what is good debt and how it can be differentiated from bad debt. Empower yourself by looking into this information as soon as you possibly can.
Don’t fall into a debt trap by thinking that all debt can be a good thing. It’s just a matter of being prudent and purposeful on how you can use debt to your advantage. Always be aware that any loans you take on must be settled immediately as possible. But, the help that comes from good debts may just be that necessary and timely boost you need to get you going.