Understanding good debt

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For many, incurring debt is the way to pay for many of life’s necessities like a home or a college degree. However, when debt is overused it can have negative consequences. But, certain types of debt, when used responsibly, can be a good investment in your future.

Student loans

In today’s world, a college education has become synonymous with having a successful career. The prevailing theory is the more education you obtain, the more likely you’ll be to land a better-paying job. As a result, incurring student loan debt for a college degree may be a great self-investment. Be sure to do your research before determining where to get your higher education and what fields are predicted to grow. This way you can feel a little more secure knowing the debt you’re incurring will be worth it in the end.

Mortgage loans

As a rule of thumb, your home is one of the biggest purchases you’ll make in your lifetime. Plus, the assumption is the value of the home will increase over time. The expectation is you purchase a home, live in it for several years and then sell it for a profit later. Do your research before buying a house. Make sure the house you’re buying makes sense for the local real estate market. Plus, your home purchase should fit the needs of your family and your budget.

Small business loans

Normally, those who have the entrepreneurial spirit take out a small business loan from a financial institution to get their business up and running. Acquiring this type of debt to jump start your business may not be a bad thing. As an owner, your aim is to create a profitable, self-sustaining entity. If you’re able to do so, you could repay the outstanding debt you used to get started.

Even though these types of debt can result in positive outcomes, they are still debt. When taking out a loan for anything, do your research. Then talk with a financial advisor to make sure the amount of debt you incur makes sense for what you want to accomplish. You also want to feel confident the return on your investment is going to be beneficial.

The advice provided is for informational purposes only. Contact a financial advisor for additional guidance.

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