Debt can be a powerful tool, but it can also create a terrible financial situation that can ruin your chances for financial independence. On this episode of Money Mile, you’ll learn the 5th and final foundation of financial fitness: use debt wisely. I’ll help you understand the types of debt, my golden rules for debt, tips for utilizing student debt, and the one type of student loan that you should avoid at all costs.
Press play to ensure that you won’t make a regrettable decision about education funding that could ruin your plans for financial independence.
You will want to hear this episode if you are interested in…
- Individuals need to be careful about debt [1:22]
- Golden rules of debt [1:55]
- The ups and downs of student debt [5:12]
- The 5 foundations of financial fitness [9:48]
- The homework [10:44]
The golden rules for using debt wisely
Debt is what happens when a person borrows money from someone and promises to pay it back at a future date or over time. While businesses often borrow money to grow, individuals need to be more careful in the way they use debt.
Lenders are in the business of making money and they do this by charging interest. For this reason, I have two golden rules for using debt wisely.
- Don’t borrow money to buy something that depreciates in value.
- The faster you can get out of debt the better.
Personal debt can be broken down into 2 categories: consumer debt and non-consumer debt. Consumer debt includes credit cards and car loans. Non-consumer debt is used to create value, wealth, or opportunity. To ensure that you follow golden rule number one you should avoid consumer debt.
The ideal way to use a home loan
Non-consumer debt includes mortgages and student loans. The ideal way to get a mortgage is with a 20% down payment and a 15-year fixed interest rate. 20 or 30-year mortgage notes are acceptable, but if you can’t save up enough to have a 20% down payment you should reconsider your financial situation.
Carefully consider whether you are financially stable enough to buy that particular home. There is nothing wrong with starting small. Listen in to hear which types of mortgages you should avoid.
Student loans can be a way to invest in yourself or in your kids
The issue of student debt is rife with emotion, but student loans can be a way to use debt wisely. As with mortgages, it is essential to follow some rules when using debt to finance education. If you are investing in yourself or your child, the first priority is to make sure it is going to be a good investment.
You don’t have to be afraid of student loans, you simply need to use them wisely. One wise way to use student loans is to lessen the costs of your educational expenses.
College education expenses have skyrocketed while at the same time the government has opened the funding for educational expenses with minimal oversight. But just because the government will loan you the money doesn’t mean that you should borrow it.
The only way to get out of student loan debt is to die, so student loan debts can haunt you for the rest of your life. Rather than using private lenders to fund your (or your child’s) education, use the Federal Direct Student Loan System. Listen in to hear the one type of loan that you’ll want to avoid at all costs.
If you are interested in the other four foundations of financial fitness you can start listening to them here.
Resources & People Mentioned
Connect With Justin Waller
Subscribe to MONEY MILE
Audio Production and Show Notes by – PODCAST FAST TRACK