Is there such a thing as sensible debt?
Debt, in any shape or form, isn’t something we welcome with open arms. Whether it’s to make ends meet, for a holiday or to cover the cost of Christmas, borrowing money to pay back later is often undesirable. Debt causes significant strain if you borrow beyond your means. But debt doesn’t always have to be bad. Surely not, you say!
Debt can be an investment in your future. Mortgages, student loans and car finance, for example, can all be considered a sensible investment. Such investments are those that benefit your future without compromising your financial security in the present.
Whether you are borrowing in the form of a mortgage or loan, sustainable and affordable repayments are vital when dipping sensibly into debt. Consistent repayment improves your credit rating, whilst failure to meet payments jeopardises your financial security as debt can breed and quickly spiral out of control.
How do I know if the borrowing is right for me?
Plan before you buy. Calculating your expenses and working from a budget will help keep you on a financial sound footing when searching the financial market. Without a budget it’s easy to miscalculate future repayments. Take advantage of brokers who will search whole-of-market, and have expert knowledge on financial products and services.
How can I safeguard my lending going forward?
Consider taking out appropriate insurance policies as your financial safety net. Income Protection, Mortgage Protection and the little-known Asset Protection insurance can ease the financial burden should your circumstances change by making sure that your financial commitments are honoured. Alternatively, if you’re investing in your business’ future, consider Business Loan Protection or Key Person Insurance. An insurance policy is an added expense which ideally will never be cashed in, but it’s better to be sensible, than sorry.