In today’s economy at one point in your life, you’re bound to take out a loan for something. It would be either for college, home, car, and the list goes on. This is not just for low or middle income, you would be surprised to hear how many wealthy people actually take out a loan and still end up in debt. Having debt doesn’t necessarily mean you don’t have the money, but it means you don’t know how to manage your finances. Let’s clarify a few things before we get into the fun part where I talk about how you can enjoy your life!
I think sometimes people get confused about this and this could certainly be different in other countries, but at least in the US actually taking out a loan, mortgage, or having a credit card would be very beneficial for one. As I mentioned before the way that the system is built it is pretty much inevitable to be in one of these situations in order to get the things you want in life. See the emphasis here is on the credit. Credit is essentially a reputation that you want to build so all these financial institutions, apartment complexes, or car dealers can trust you.
It’s not enough to have some money in the bank. Even if you have more than enough money in your bank account, chances are with no credit you will end up paying more for things. Simply put landlords, institutions, and companies need extra assurance meaning a deposit or in some cases, a down payment that is probably more than it is required because they don’t know your track history since you don’t have any credit. It’s just the way system is built. The thing to emphasize here is income. Credit and income are the things that matter the most. In fact, think of them like twins when they are separated meaning not accounted together it’s a mess.
The mess that I’m talking about is debt. Not all debt is bad. If you actually borrow the amount you can pay if you had to that is not bad at all. In fact, paying your debt is going to build your credit and make you a more of an attractive candidate for things you want in life. The problem is when you don’t pay for the things you borrowed. This is when debt is controlling your life and your so-called net worth is in the negatives. This is also true when you borrow an amount you know for a fact won’t be able to pay it off.
The key here is to use the credit system for your advantage so you can build your credit wisely and not destroy it before you even build it. Always remember to calculate your expenses and think about how you’re going to pay them off before applying or signing papers. Don’t borrow money and think that things will always be the same. You need to be mindful of how things might change. Inflation is real and with the pandemic still being here, it is good to be cautious for the unexpected.
Now the fun part! The best way to stay out of debt is by budgeting. I know that’s not what you were expecting to hear when I said fun, but hear me out. Once you know your budget, you know if you have a wiggle room or not. There is no guessing game. Numbers don’t lie. Plus, with the wiggle room you have, you can use your credit wisely to buy things that you know you can pay in full especially with your credit cards. In this way, you will jack up those points, cash back or miles, and still be debt-free because you won’t be carrying a balance. By understanding your income and building your credit, you will get to enjoy the things you want in life.