Take Control Of Your Finances: The Top Five Things People Go Into Debt For
Personal finances can be difficult, but you can be smart about avoiding debt with a major purchase. It’s important to know when it’s okay to spend, and when you should hold off and save more. The following are the five most common purchases that can create debt.
A new house
It has been said that the debt from a mortgage is an investment and therefore good debt, but this is only true if the house is something you can afford. This means being able to make your mortgage payment without difficulty and pay for necessary maintenance of the house as well as property taxes. When purchasing a home, make sure the house is within your price range. You also need to have a significant down payment to have some equity built into the home to avoid owing more than the house is worth if housing prices drop.
Higher education
A student loan can also be considered good debt in the sense that it is an investment into your future. However, if too much debt is taken on to get a degree, it is most likely not worth the trouble. A good rule of thumb is not to borrow more than your anticipated first year salary will be after graduation. If you can get a good education at one school, think about the pros and cons of spending thousands more to go to a different school. Make smart choices when it comes to student debt so you can pay it back and get a rewarding job.
A new car
Often people will grow tired of their old car and want a new one. Even without a down payment set aside, they may use their old car as a trade-in in lieu of a cash down payment. If the older car was paid off, there now is a monthly payment that must be made. It is best to keep your car after it is paid off. When repairs are needed, have them done. That will be much cheaper than a new car payment for years to come. Having more and more car payments can quickly put someone into debt if they aren’t careful.
Large household appliances
This type of debt includes such things as a washer, dryer, refrigerator, flat screen television or other big ticket items for the home. Here, it is important to save up your money and pay cash. There may be a situation where you need a large appliance and are caught short of money, and under this type of circumstance, you may have to take on debt temporarily. However, it should be a necessity, such as a refrigerator. It is best to keep your appliances as long as possible and pay cash for new ones. This is not something that should be a major financial burden.
Medical expenses
Medical bills can be large and unexpected. In fact, they are the top reason for bankruptcies in the country. Your best defense against having too much medical debt is to prepare in advance with the best medical coverage you can afford. You should also have a savings account dedicated to unexpected medical bills to help you through difficult times. Be sure that you also keep a good record of all your medical visits so you can get reimbursed or covered through your insurance without the extra difficulty.
Staying debt-free is not always possible, but it is important to be smart about it and know when to stop spending. If you find yourself in too much debt and don’t know where to start, consider credit counseling and focus on paying off current debts before spending more.
Informational credit to Paddon & Yorke Inc.
Category: Debt
