Debt is often frowned upon, but there are significant milestones in life when it might make sense to go into debt.
If you’re going to borrow large sums of money, you need to have the right reason. That is, don’t go opening new lines of credit because you want to have the latest fashion trends for summer. But going into debt for life changing purchases will, in fact, benefit your finances in the long run.
You’ve likely heard that debt is a terrible word, and something even worse to find yourself in. But, some debt is considered good, especially when you take out money to either invest in your education or purchase a home.
Taking on debt to buy a home can be a good thing.Buying a Home
The upcoming spring season is expected to be a positive for sellers and buyers. After a long, dark and cold winter, many neighborhoods will become hot destinations as sellers look to unload their properties, while buyers are there, ready to snatch up a home.
And unless you have enough cash on hand, you cannot afford a home upfront. At the least, you can put forth a 20 percent down payment. To cover the remaining cost of the house, you will have to take out a mortgage, and doing so will put you into debt.
But this is OK. When you become a homeowner, you are entitled to numerous benefits, both financially and personally. Every year you’ll have the opportunity to claim interest payments, and property taxes on your annual income tax filings. You can even receive deductions for making energy-efficient improvements throughout the home.
Owning a home also means you’ll be able to build liquidity, which can come in handy if, later on, you decide a major renovation is in order.
Elsewhere, moving into a home is part of that beloved American Dream. It’s what almost every family seeks to achieve. When you buy a house, you’re giving your current – or future – children a stable place to grow up in.
Going into debt to buy a home also currently makes sense because interest rates remain historically low. The U.S. Federal Reserve has hinted that future interest rate hikes will likely come throughout 2016, but those will be gradual after the slight increase in December 2015.
If there was ever a time to jump on a mortgage, now would be it while rates are favorable for borrowers.
“Earn higher income with the more education you have.”
Paying for an education
It is quite common to graduate college with a hefty amount of debt. Even though student debt is the No.1 form of debt in America, an education is still seen as necessary, especially in the workforce.
According to a study from the U.S. Bureau of Labor Statistics, you can expect to earn higher income with the more education you have. For example, individuals who have a high school degree earn a median of $668 per week. With a bachelor’s degree, weekly median earnings increase to $1,101, and it only grows with more advanced degrees.
Taking out money to get an education can be seen as an investment in yourself. However, don’t feel pressured to attend college. There are numerous career opportunities in other fields and technical schools that also lead to fruitful careers. Like with other forms of debt, you have to wisely consider the advantages and disadvantages of going into debt.
The Bottom Line
Avoiding debt at all costs isn’t necessarily right for everyone. There may be times in your life when you find that borrowing money will help with your long-term goals, such as becoming a homeowner or furthering your education.