What Is Good Debt? 5 Examples of Debt and How it Can Work to Your Advantage
It’s normal to see debt as a liability by default. It needs your utmost commitment in paying the monthly dues on time. Bank loans are topped with interests and other fees, and it takes a lot of consideration on your part before signing any agreement. It’s important that you have the right purpose in loaning your money, and make sure you’re able to pay your loan as soon as possible.
Good debt is something that will raise your net worth over time, let you save money, or avoid unforeseen emergencies that can threaten you and your family’s security. Taking all these to account, here are the types of Good Debts that can help you in life:
Student Loan
Education comes first. This is the priority of most parents and individuals if they want to improve their life. If you or your child is determined to study, then this will turn into good debt when you’ve reaped the rewards of hard work and diligence. You can always pay it once you’ve graduated or earned enough money for yourself.
Home Loan
There are a lot of ways to turn a Home Loan into good debt. If you’re ready to settle down and you and your other half’s gross monthly salaries are capable of paying a long term loan, then now is the perfect time to apply. The monthly amortizations tend to be lower for longer terms. Some banks provide up to 20 years of loan term. Keep in mind though, that the longer you pay for the loan, the bigger the accrued interests. You may also use your home loan to buy a condominium and have it rented out in the future. This allows you to have a source of passive income and may even let you retire sooner than expected.
Home Renovation
Multi-purpose Personal Loans allow you to borrow money for home renovation purposes. There are several reasons why this can turn out to be good debt for you. You can repair the plumbing to avoid leaks, thereby saving you from the hassle of paying bigger water or repair bills, or simply to provide a safe and comfortable environment for your growing family by improving your home.
Business Capital
If you’ve done enough market research for a business that you’re planning to launch but you’re short on capital, then it’s the right opportunity to apply for an SME business loan. This also applies to dwindling businesses that need a jumpstart. Whatever the case, a business loan is the best type of good debt because generally, the returns on your business is faster and bigger than the loan you borrowed and it can easily be paid on a shorter period.
Provide a business plan when you submit your loan applications to the banks so they see exactly how you’re going to use the money you loaned. This also shows how serious you are about the business, thus boosting your chances of getting approved.
Auto Loan
Some examples of turning auto loan into good debt is when you have a business that requires a vehicle for its everyday operations, or if you live far from your office or business location. Think about how much you’re going to save from having your own car. It may not be apparent in the first few months, but you’ll notice that with the savings, you also get convenience from owning your own private vehicle. You’re spared from the costs of commuting or the hassle of renting a car.
Shop around for the best loan deals from the leading banks in the Philippines. You might want to use a loan calculator or call the banks of your choice to verify their interest rates and other charges. BDO’s Home Loan Calculator, for instance, lets you know how much you’re going to pay for the loan. Simply enter the loan amount you wish to borrow and it’ll automatically break down the total cost of loan for you.
Know that you can turn the tables and make debt work for you. The essence of good debt is that it can help improve your life in the long run. The outcome or everything that you will earn eventually justifies the loan you applied for, and the interests that come with it. You just need to change your mindset and let money work to your advantage.
