Going into debt is usually a bad idea, but in certain cases, going into debt is a sound financial decision that can help you achieve key goals in life. Here are four circumstances when taking on debt is a good idea.
1. A Student Loan
A student loan is one of the best reasons you can go into debt. The U.S. Census Bureau indicates that college graduates earn approximately double the amount of high school graduates. The Bureau of Labor Statistics reports that college graduates can expect to earn $21,528 more per year than high school graduates. However, your results can vary, with certain majors such as engineering, computer science and economics tending to earn degree holders more money over time.
2. A Mortgage
Taking out a mortgage to buy a home is a sound financial decision in most cases, as long as you have about 20 percent for a down payment and are buying a house you can actually afford.
A mortgage is tax deductible, which means you save money at tax time. Your home is also a store of wealth and an investment that can grow in value over time. As long as you make your mortgage payments on time, a mortgage can also help you build a long-term credit history that shows you can be trusted.
3. Buying an Affordable Car
In some ways, taking out an auto loan is known as “bad debt,” mainly because the value of your car depreciates as soon as you drive off the lot. That being said, most people in the U.S. require a car for their everyday lives. Buying a reliable, fuel-efficient car with good resale value can help you avoid some of the pitfalls of depreciation and ensure you have a car that you won’t have to invest a lot in for repairs over the years.
4. Starting a Business
For many people, starting a business is a dream and the key to a bright financial future. Of course, there are potential pitfalls to opening your own business. The Small Business Administration indicates that only 50 percent of all businesses survive five years, and only 30 percent survive 10 years.
Before you take out a loan to make your business a reality, you need to ensure you have a solid business plan that enables you to not only pay off your debt, but also keep your business profitable and running well. You can also incorporate your business easily online here.
Ultimately, there is always an element of risk to taking on debt, but if you do it for the right reasons, taking on debt can pay off big time.