Almost everyone has incurred some type of debt in their life—it’s practically unavoidable. However, not all debt is created equal. From installment loans to credit cards to home equity loans, it’s important to be aware of the types of debt you take on in order for you to properly manage your monthly budget. And while all debt needs to be paid off eventually, some types can actually work to your benefit.
So what can debt do for you? Well, sometimes debt is necessary in order to help you reach milestones. For example, most people don’t wait until they can pay for a house in full before moving in. As long as you make smart choices when it comes to your loan options, and educate yourself about ongoing costs, a home can be a very fulfilling and financially smart investment.
However, debt can also come with a host of problems if you’re not careful. Before taking out any type of loan or credit card, determine whether you will be able to afford payments. It’s important to develop a payment plan and make sure it fits within your monthly budget before digging yourself into a financial hole. When it comes to a credit card, it’s true that making regular payments can help boost your credit score, but it’s still important to check your credit report so you can be aware of how your credit activity affects your score.
It’s important to also note that debt management is not always black and white. Say you invest in a new car. It’s likely that the car will lose value over time. However, if you’re using that car to commute to a job, the debt is helping you earn income. So the car loan could be considered beneficial as long as you buy a reliable vehicle that doesn’t require constant maintenance and great expense to operate, and you are able to afford payments within your monthly budget.
At the end of the day, be thoughtful when making purchases. Be aware of interest rates and actual payment amounts. Then ask yourself if the debt will lead you toward future goals or derail you. With the right knowledge and strategy, you can effectively manage, and even eliminate, debt.
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