We wrote recently about how debt can sometimes be a good thing. While it is true that most educated financial experts will agree that often times debt can hurt, most will agree that there are times that debt can be an extremely useful life tool. Loans and debts can even be used to generate cash, not just put you into debt. For example property most often over time appreciates in value, adding to your wealth. A couple we featured recently sold a home they bought for only $180k for well over $350k, granted they bought that home 12 years ago, yet it is still a considerable return on investment. They obtained the home they sold for a profit via a loan, and ditched a high rent duplex when they obtained their mortgage. This is how debt can be turned into generating cash or profit.
Even good debt however can be bad if you do not have the abilty to repay your debts. You should always carefully examine your finances and your budget before taking on any debt. Even if you have the ability to make your payments on time, there are other factors to look into, such as your debt to income ratio. If your debt to income ratio is too high you could see your credit score suffer. Too much debt can also make it difficult to meet day to day expenses and other obligations that may come up from time to time.
Some financial experts disagree on some points about loans. One point some experts all agree on is taking advantage of the low interest rates that are being offered today, but for certain are bound to increase in the near future. For example car and auto loans are at the lowest interest rate in years, same goes for mortgages, but the fed is signaling an improving economy, so rates are bound to change in the near future. if for example you predict that you will need a new car next year, it may make sense it buy that new car today at today’s lower interest rates than to wait and possibly see interest rates 3% or more higher a year down the line. It will not make sense to rack up thousands of dollars on credit cards that have anywhere from 15% to 29.9% interest, while it does make sense to take advantage of today’s lower personal loan rates. It also makes sense to take out a loan rather than to pull out cash from investments that may be earning you anywhere from 6 to 8 percent or higher.
In fact today is the right time to take out a personal loan for any future financial needs that you can predict occurring in the near future and with in one years time frame. Rates are lower today than they have been in years, but these rates are sure to climb due to the fed and the improving economy. You just need to figure out the value of the loan today versus what you are getting versus the higher interest rates you could end up paying down the line, you just may find out it makes more sense to take out a loan this year versus next year to secure lower interest rates.