Debt. We all hear the word and instantly we have this dark looming figure over our head and are reminded of how much we still owe on the house, the car, and the student loans. We live in a world where we have to go into debt to purchase things like a house or a decent car. There is just no way around this. It would be nice to be like I like this house, hand over a briefcase full of Benjamin’s and live happily ever after. Unfortunately, we live in an expensive world where we need a lot of help. If you can better understand debt you can use it to become more financially successful. If we don’t understand debt we can fall into a lot of the interest traps and become a slave to our debts.
Use debt only as leverage.
Sometimes you need more leverage. No, I’m not talking about the hit TV series that takes down the evil corporations. I’m talking about using our debt to our advantage rather than being burdened by it. Let’s talk about how business use debt as leverage then we’ll talk about how we can. Business are money making machines that’s their whole purpose in life. In order to be competitive, they need to grow and expand. Now if a business takes on no debt and they want to be self-sufficient. They can do that. The thing is they will only stay afloat and expand slowly. Now if a business takes on the right amount of debt to open more stores and buy more equipment. Their production increases and their profit increases. The best part is that can gain tax benefits by using debt. I won’t go into too much detail about the taxes because of all the changes coming up. But talk to a CPA about the tax benefits of debt
Now let’s bring this more close to home. How can we use leverage to get more money? Well, probably the best example is student loans. The government wants you to go out and get an education. If that means a Degree, a trade school, or a certification. That’s why there are so many grants from the government. The most important thing is tax deductions on student loans. So like a business we can borrow money, add value to ourselves, pay back the debt, and make more money. When we use debt that way that is leverage. Same for a car. We need a car to drive to our jobs if we use debt to get that mode of transportation it opens up a lot more opportunities to find success and make more money.
Don’t fall into the debt trap
The average American has around $12,000 in credit card debt. The ridiculous thing is interest rates on these cards are 15-25%. There is an old saying in the finance world.
Those who don’t understand interest. Pay it. Those who do. Earn it.
Here’s the thing for most stuff we throw on a credit card is not being used to leverage our position in life. It’s us wanting to go on that trip to Hawaii or having to pay for new tires for the car. Which is fine as long as it’s quickly paid off. The problem many Americans are getting into is charging more money on their card than they can keep up with. When money sits on your card for long periods of time you lose a lot of money just paying interest fees.
Another trap that people fall into is the Minimum payment due. We’ve all been there swiping our card having fun and not caring. But when we look at the statement and see that the fun weekend in Vegas put $2000 on the credit card. When we come the realization that we really did spend that much we panic and consider selling a kidney. But wait! We only have to pay $30 dollars a month for the minimum payment. So everything is ok! Wrong! If you sit down and do the math and factor in the interest accrual amount. It will take 40 years to pay off that trip to Vegas if we only pay the minimum amount. Give or take a couple years depending on your interest rate. So why is there a minimum interest rate? Because the credit companies want you to take your sweet time paying off these debts because they’re going to make a fortune off of you.
Get and Stay Out of Debt
If you are in debt now is a great time to start making some spending habit changes and put your finances on a diet. Set goals, make a plan and stick to it. Talk to a banker about consolidating your debt into a more manageable form. For more on this see these Articles_________________________. Once your out of debt only keep a level of debt you can handle. You should always have money in the bank to immediately pay off your debts.
Don’t be taken advantage of by these big card companies who just see you as a dollar sign. Take control of your finances to take control of your life.
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