There are a lot of instances wherein debt is unavoidable. Of course you can always save up for it but if you want to buy a home, it will take years to completely save up for that! If you need a home now, simply get a loan so you can buy it and any rental expense that you used to make can be put aside for your monthly amortization.
But before to take on that much needed debt, there are several things that you have to consider – the most important of course, are the three factors that we mentioned at the beginning of this article.
So what are the other considerations that will allow you to take on debt the smart way?
Of course, the usual method is to check how much you can afford to add to your debt payments. But that is not only how you prepare for your debts smartly. You need to consider how you want to live your life beyond this debt. While you really have to base your loan on your current income and expenses, you have to look at your future as well. In a few years, your expenses will change as you make life changing decisions. This can affect your debt payments – or it can affect your future plans.
For instance, if you plan to marry in the next few years or switch careers, these will affect both your expense list and your income. Debt has the potential to rule how your future self will live. It can keep you from going after a career that will provide you with a more fulfilling experience because you have to prioritize the debt that you have to pay for. It will make you rethink having kids because once you do, one of you and your spouse should give up their career to care for the kids. How will you afford your debt payments then?
So if you have to take on debt, you need to make sure that it can provide you with the means to pay it off – like a business loan for instance. If the debt that you plan on getting is only to fund a vacation or a luxury car that you do not really need, then do not get it. This is how you think smartly about your debt.
And before you take on one, make sure you have a plan in place to pay it off. If you want to use your credit card for the reward points you want to accumulate, then make sure you pay off the balance on the next bill so you do not get interest and fees. If you cannot do that, then don’t incur credit card debt.