One of the common topics that comes up for debate when talking about personal financing is that seeming urban legend about “good debt”.
The reality is most of us are carrying one debt or another but may not think of it as such. For example, your mortgage and car payments are actually considered debt.
Ultimately, there are times when debt makes good financial sense. Let’s go back to the car payment for example.
As we see from time to time, dealers and manufacturers will offer as much as 0% interest over a given period. You don’t outright own your car at this point, but you’re also not “losing” money by paying out the additional fee associated with an interest rate.
Thus, the final cost for your car will be $30,000, whether you pay a lump sum now or spread it out over the payment cycle, say of 60 months (or 5 years).
While you pay this down, meanwhile, your set-aside $30,000 for the car can be making money for you. Putting the money into a monthly or annual payout situation means that at the end of those five years you’ll have made some extra cash on your investment.
Ultimately, debt in some circumstances can work for you rather than against you, but it’s knowing all the parameters in advance and being prepared. If, as in the scenario above, you aren’t a big car person and aren’t loyal to a particular make or model and a 0% offer comes up, you may want to look a little deeper at taking advantage of this situation.
For more tips from Doug Buss and the experts at YourStyle Financial, check out our newsletter archive.