What you should know about debt now!
Debt is an outstanding amount of money that you are obligated to pay. A few examples of debt are car loans, mortgage loans, and personal loans. Each debt will create liabilities that consume your income and decrease your ability to save or invest your money for retirement. So it’s best to avoid debt if possible. If you feel you have no choice, there are two way to use it:
Debt For Consumption
Consumer debt is when you borrow money to purchase a car, house, or any personal items. This is the worst type of debt as there is no economic benefit. Consumer debt will garnish a percentage of your income usually in a monthly payment for a period of time. This is considered overspending your income. Not to mention, you will overpay for consumption due to interest associated with the debt. When you overspend, you become a slave to the lender. You must maintain a sufficient amount of income to pay your debt on time and in full.
Debt For Cash Flow
Utilizing debt to create income is the best option of the two. Mortgaging a property for rental use is a great example and probably the most common for cash flow. When you invest in a rental property, you will create rental income that will pay back your loan while providing you will a little extra as profit. Your loan obligation will become the occupant’s expense. If you choose to use debt, let this be your method!
Why Should You Avoid It?
It can restrict freedom in many ways. The most common restrictions are time, choices, savings.
Time
Time is our most valuable asset. We can never rewind it. So it’s very important we try our best to use it to live our best life. However, this can be difficult when you owe money for student loans, mortgages, and cars. As a result, we spend countless hours working to repay those debts. For most people, their expenses will keep them in this predicament for the rest of their life. The more time we spend working, the less time we have for the endeavors that are important to us. There are many cases where people are forced to work multiple jobs, long exhausting hours, and jobs they dislike in order to maintain their bill payments.
Happiness
As mentioned above, debt can force people into jobs they don’t like or into working long hours to meet financial obligations. This completely hinders the ability to make a decision based on happiness. Thus, we find ourselves in a depressing situation. Because of it, we choose careers based upon earning potential and not fulfillment. Not to mention, we may have to choose between our personal life and work. Most people never find the right balance due to the long hours or multiple jobs to meet overwhelming expenses.
Savings
Without savings, you can’t retire! The debt will make it extremely difficult to retire early or on time. Don’t allow your bills to hinder your dreams of traveling the world and watching your children grow. According to a survey released in 2017, CareerBuilder found that a large portion of Americans are in debt and are living paycheck to paycheck. Below are the key findings of the survey:
- Nearly one in 10 workers making $100,000+ live paycheck to paycheck
- More than 1 in 4 workers do not set aside any savings each month
- Nearly 3 in 4 workers say they are in debt – and more than half think they always will be
- More than half of minimum wage workers say they have to work more than one job to make ends meet
- 28% of workers making $50,000-$99,999 usually or always live paycheck to paycheck and 70% are in debt
