Posted On: September 13, 2024 by Prevail Bank in: Banking
Some people avoid debt entirely, choosing to pay for everything with cash or their debit card. This approach is valid and keeps spending in check, but it may not help build credit for future borrowing needs.
For most of us, debt is a part of life, used for everyday expenses and major purchases. When managed wisely, debt can be a valuable investment in yourself and your future.
Examples of Positive Debt:
Student Loans:
Investing in education through a loan often leads to higher earnings and better career opportunities, making it a smart choice for long-term success.
Buying a Home:
A mortgage is generally considered good debt because it’s an investment in an appreciating asset. As you pay off your mortgage, you build equity in your home, which can contribute to your overall wealth.
Starting a Business:
Borrowing to start or expand a business can be beneficial if the business generates more income than the cost of the loan. This type of debt can be a key driver of financial growth.
These examples show how positive debt can help you build wealth and improve your financial situation over time.
Understanding Nonproductive Debt:
Debt that doesn’t generate income or build wealth is often seen as nonproductive. This includes spending on non-essential items like vacations, luxury goods, or depreciating assets such as recreational vehicles. Although this debt isn’t necessarily bad, it’s important to manage it carefully, especially since interest rates can be high. Paying off this type of debt quickly (preferably within the next payment cycle) helps prevent financial strain.
Making Smart Debt Decisions:
Before using credit or taking out a loan, consider these questions:
- Purpose: Will this debt enhance your financial future?
- Affordability: Can you handle the interest and payment plan without strain?
- Commitment: Are you confident in your ability to make payments on time?
Being mindful of these factors helps ensure that your debt works for you, not against you.
Additional Tips:
Choose credit cards that offer rewards and have no annual fees. Prevail Bank has one for you to consider.
If you have multiple debts, talk to a banker about consolidation options to lower your interest rates and simplify payments.
When buying a vehicle, consider saving for a larger down payment to reduce your monthly costs and total interest.
Reach Out to Us:
Before making a big financial decision, connect with a Prevail Bank professional. Whether you’re looking at home loans or considering a business investment, we’re here to help you find the best solution. At Prevail, our goal is to help you achieve your dreams by making smart financial choices.
