How using debt responsibly can help improve your finances.
Debt, when managed poorly can have devastating effects on our finances. Almost everybody borrows, but there is a category of people who have used debt as a means to financial freedom. They have embraced debt as part of their lives but have been smart about it. These people have managed to improve their lives; all they have borrowed has gone towards expenses that have helped them build a strong financial basis.
So how do they manage?
As a student, you will probably require a loan to complete your studies. You will need money to pay for tuition, buy books and other reading materials, upkeep and other expenses which are related to study. By the time you graduate, the amount owed may have accumulated to high levels.
This often means that you start your earning life with heavy debt and if not well managed it can lead to financial stress. However, student loans are often catergorised as ‘good debt’, or as an investment. Student loans can have a positive effect on your finances as they can increase your career opportunities and earning potential by a large amount!
Student loans in New Zealand are normally interest free, which means that you do not need to worry about incurring costs if you student takes many years to pay off. Most people opt to automatically deduct a small percentage of their income to pay off their student loan. This amount is usually very small, can often go unnoticed and will not affect your ability to pay for other expenses
Another example of ‘good debt’ is mortgages. Mortgages allow us to own a house once we have saved enough for a deposit. The amount we could have used to rent a house we channel towards a mortgage and home ownership. Mortgage as a debt helps us to invest in property which is likely to have large returns.
Using debts responsibly leads to an improved financial life, and to a greater extent better living. We should not fear debt; we only need to use it responsibly. Only borrow when it is necessary or for investment purposes.
Disclaimer: The above information is general in nature and not intended to be financial advice. You should consider seeking professional advice before following any suggestions in this blog/website.