DEBTerminator

There are some reasons you should never have debts. Here are five.

1. Food. Can’t buy food without going into debt? Bad, bad, bad. Example: you’re at lunch with coworkers, and can’t pay your bill, so you borrow $10 “until payday” to pay for lunch. No, no, no! If you find this happening more than once, stop going out to lunch!

2. House payment. If you need to borrow money to pay your rent, or pay your mortgage, that’s a no-no. Bad reason for getting into debt. With a mortgage, you’re already in debt, so don’t borrow to pay another thing you’ve already borrowed. (Also see #5.)

3. Utilities. When the telephone or water or electric bill comes due, if you can’t pay it and have to borrow to make that payment, you’re in trouble with cash. Bad reason to borrow.

4. Auto fuel. Do you find you need to borrow $50 to buy a tank of gas “just until next payday” when you’ll pay it back? That’s trouble a-comin’ and a bad reason for being in debt.

5. Paying other debts. If you can’t pay a credit card bill without getting a cash advance from another credit card you’re heading down a slippery slope toward financial ruin. Bad, bad, bad.

And here’s another reason:

6. Gadgets. Don’t buy something on credit thinking, “I’ll pay this off in a few payments.” What happens if your income suddenly stops? Very quickly you fall into the trap of the first five bad reasons for debts. That downward spiral starts very quickly. Don’t do it.

I could go on and on. I’m sure you can think of another dozen bad reasons to have debts.

Think there are any good reasons to have debts? I came up with a few, see if you agree with my list. If you have more, good or bad, let me know by leaving a comment.

Know someone who is overwhelmed by debts, and looking for a solution? My new book has five alternatives to dealing with debts, and examples of how to resolve each one. It also includes letters you can send to your creditors to help you with the process of resolving your debts. Buy it on Amazon, Barnes and Noble, CreateSpace, or at many fine bookstores nationwide.

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What? You ask, “Are there ever any GOOD reasons to have debts?” And the answer is, “Yes, sometimes there are.”

Five good reasons to have debts:

1. Home mortgage. With interest rates historically low for several years, you can own a home for a lower overall cost. If you can afford the higher payments of a 15-year loan, you’ll have your home fully paid off in half the time you’d expect. If you can make payments twice-monthly (pay half the payment twice a month), you’ll save thousands of dollars in interest over the life of the loan.

Another aspect of home ownership is that your mortgage interest is a healthy tax deduction that is likely to continue for years. Coupled with your property taxes this can add up to a large amount. These tax deductions can make a significant impact on your bottom line, and increase your take-home pay in the long run (or give you a large refund if you prefer that).

2. Car loan. If you need a car, and want to buy a new car, there are still 0% interest auto loans out there to be taken advantage of. Yes, you’ll need to have good credit, and yes, you’ll need to keep the loan for five years If you can meet those expectations, you have essentially borrowed for the car at zero cost. That is a deal you don’t find often.

3. Education.  I think it’s best to get through college without racking up student loans. But if your college of choice is too expensive for that frugal approach, then a student loan is a debt that should be able to increase your earning potential for the long haul. (Unless your major is something arcane that isn’t going to bring you employment. In that case, don’t borrow for that education, go for 100% scholarships.)

My advice is to pay off the student loan as fast as possible so you’re not burdened by it during your ascendant career. You’ll be free to make career choices based on your best interest, rather than choosing the less-desirable but higher-paying job just to pay off the student loans.

4. Some home improvements. This wouldn’t be for the “total master bath makeover” you’ve always wanted, because you won’t increase your home value enough for the money spent. But if you need to fix up a few things to get your house ready for market, a home equity loan used judiciously can give you a better return on your investment when you sell.

5. Start a business. I would say this is a 50-50 proposition. Some businesses, however, will take an initial investment that you might not have right now. A small loan to get you started might be just what you need to get going. If the loan can be repaid quickly from the income of the business you’ve just started, then you’re better off than if you didn’t start the business.

Now, if you’re having trouble with debts and want to know how to deal with them, consider purchasing my book and getting five alternatives to working with your debts.

If you prefer, you can find the book on Barnes and Noble, and also at other fine bookstores nationwide.

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