Debt will always be part of your financial history. Whether it’s using an overdraft service like Fuliza, mobile money loans, or a mortgage. However, if managed wisely, you can grow your wealth. You have to spend money to make money. But financial anxiety can often get in the way of your progress.
Reports show that at least one in eight middle-class homes is in debt, which is three-quarters greater than their assets. In South Africa, middle-class earners spend 60% of their wealth repaying unsecured debt like credit card repayments. Experts suggest you shouldn’t use more than 40% of your income to service personal debt. However, not all debt is bad.
How can debt work for you?
Take a valuable debt
Using debt to purchase something of more value than a loan is one way to build wealth. This includes business loans, student loans, or mortgages. Beforehand, see whether you have the resources to pay it back. When taking a student loan, ensure that the projected salary of the resulting job can help you make the repayments. You should also take a loan for a highly valued course. Specialised certification courses can be very expensive. But they’re coveted skills among workforces.
Paying out of pocket can clean you out. Taking a student loan can be the easier way to keep going to school and avoid using mobile money loans or taking extra credit cards, which have high-interest rates.
Finances: How To Pay Off Your Student Loan Without Draining Your Account
Take a loan that enables you to save money
Borrowing a loan to upgrade your house or business will save maintenance costs in the long run. Renovating property to repair damage or improve appliances can also enable you to save up on resources. Eventually, this helps you rent or sell it at a profit.
Use debt to grow your business
A low-interest, long-term loan can help you grow your business. Using that money can provide capital to run things smoothly. You can also use the money to boost your marketing. This helps streamline company operations, boost productivity, and help your company’s products reach more customers. 5 Things You Should Do Before Taking A Loan for Your Business
Read Also: Business Expenses To Table Until You’re Making Money
Sort emergencies
You may need to take a loan to pay for an emergency. House damage like flooding or a fire may need a loan to repair the house without having to dip into critical savings. Medical emergencies may also require loans. However, you must choose long-term loans that don’t break the bank during repayment. Avoid using credit cards to pay for repairs. This is why you need an emergency fund and it is advisable to have an emergency fund.
Read Also: How You Deal With Debt Can Make You Or Break You. What Are Your Debt Habits?
Don’t repay good debt too fast
If you are lucky enough to find a low-interest loan opportunity for mortgages or student loans, don’t be in a hurry to clear it. It’s true that the longer the repayment period, the more money you pay back. If you can afford it you can put some of the loan repayment money into high-yield savings accounts. Some banks and SACCOs have accounts where you can earn interest way above the low-interest loan.
Good debt can help you improve your financial status. However, you should avoid accumulating too much debt over a short period. Ultimately, debt will affect your finances, but you can use it to meet your financial goals. Not all debt is bad debt.
Check Out
Personal Finance: Practical Steps To Get Out Of Debt
Why You Need To Work On Clearing Your Debts
Finances 101: How To Create A Budget And Different Budgeting Methods You Can Use
How To Increase Personal Income Without Going Into Debt
Mortgage Refinance To Pay Off Debt: Do It Right
