Good vs Bad Debt: Which Loans to Prioritise
Although most people argue that there is no good debt, sometimes borrowing is inevitable.
You may fail to avoid borrowing especially when you intend to make some capital investment that would either take too long to achieve or even impossible as the future value continues to increase.
However, you have to think critically when considering the best debt to acquire. It is paramount to know which loans are worth prioritizing.
This is considered as any borrowing done to buy anything that would not generate any income.
Borrowing should never be an option when buying luxurious items or any depreciating asset such as expensive cars.
For some people, having a car is a necessity it is not advisable to borrow to get one.
“Avoid such borrowings at all costs”
Worse still, there are some people in Singapore who buy clothes and consumables on credit. You ought to avoid such borrowings at all costs.
It is true that you need clothes and food but looking at it from a financial perspective, you should never buy these commodities on credit.
This includes money borrowed with an intention of generating more revenue in the future.
It is any borrowing that can help to increase your net worth and improve your living standards significantly.
Some of the good credits include borrowing for education purposes. The more education you acquire the higher your chances of getting better employment that can give you good earnings. It is worthwhile to use your credit card to pay for your self-improvement in terms of education.
“Money borrowed with an intention of generating more revenue in the future”
It is also acceptable to borrow for business investment. Business has the potential to generate more income, therefore there is no harm in borrowing to start or expand your business.
You can also borrow to invest in real estate. When you buy your home you will be saving a lot in long run.
Which Loans to Prioritize
You need to ascertain that there are no other means of acquiring the money before thinking of borrowing.
You should start with having a structure of the repayment plan depending on the level of your income.
It is advisable to think of the interest attached to the amount you are borrowing.
Credit card, for example, is super expensive in Singapore. You should avoid such by all possible means.
Although borrowing is sometimes unavoidable, it is crucial to borrow when necessary.
You should never borrow for luxuries or for things that will not generate more income.
Always consider creditors that have the least interest.
By so doing, you will avoid any unnecessary debts that could be so draining.