Is debt good? Is being in debt bad? Is it ever possible to stay debt free especially during this recession period when every when is feeling the financial crunch? Should I get rid of my credit cards and use only cash so that I don’t get into financial problems? I do have few credit cards and I do use those whenever I am making purchases. It is not about good credit or bad debt, it is all about managing your money.
When Debt is Not Bad?
Is it ever possible that debt can be good? People starting businesses, or expanding the business for making more money borrow money all the times. The idea here is to borrow money and use the loan or debt for generating income stream that not only lets the borrower pay the debt but also make some profits. So as long as you are paying back your debt from the money you making by investing the borrowed money.
Is it that simple then why not everyone borrowing money and making good money? Why people are declaring bankruptcy all the time? Don’t just follow other’s foot steps. If you borrow money for business for which you didn’t do any market research or proper planning, the chances are that you will fail in that business. Not only you will loose the business but also you will fall directly into debt hole.
However, on the other hand if you invest into ventures for which you have the passion, know how, and experience, you have higher chances of walking on to the path of success. The key here is not to dream high especially when it comes to business projects you should always measure your pros and cons before starting new projects.
When Debt becomes Ugly?
Let’s say you don’t have money at all to meet your expenses and you keep on borrowing using your credit cards or from some other financial institutions to spend on your day to day living expenditures. You can clearly picture yourself falling deeper and deeper into the debt pit. The deeper you are into debt, uglier the things will become for your.
This was an extreme case. Now let’s consider a scenario where you do have money in your account and you can have a decent living from your income sources. Some how you are pressurized socially to make big ticket purchases which you don’t even need or you don’t have the money to spend on. An example could be that one of your neighbors bought a new trendy car and you felt the urge to purchase the similar car which is beyond your means. Soon you will be deep into the debt. However, if you save money first and then buy the car or find a deal where your monthly payment is never going to be more than what you earn, there should be no problem.
The key here is to carefully judge your financial means and manage your income so that you stay out of debt. Remember that even though you don’t have a posh car or a luxurious lifestyle, as long as you are not broke and stuck in the debt pit, people will still respect you the way you are. Imagine if you are broke just because you made financial mistakes of spending money on things which were beyond your means, will people still respect you?
Now that we have understanding of the fact that debt can be ugly but if we use the debt for carefully judged investment, the same debt can be the best thing you may ever have. In part-2, I will talk about some steps you can use to avoid bad debt.
One Comment on "Tips to Avoid Falling into Debt: Part -1"
[...] talked about the debt and how it can be good as well. Now lets talk about some steps which we can take to avoid being into debt, bad [...]