Read Before You Get Into Debt

Hey, fellow knowledge seekers!

It's your friendly Unfussy Scholar once again with new knowledge to share.

In my last post, I provided some side hustles you can do in 2024 to help increase your income. I believe another source of income is needed in this time of rising costs and stagnant wages.

For this blog post, I'm going to be talking about debt and how it's something that you should think hard about before getting into it.

When you get into debt, you're borrowing money that you don't have right now, with a promise to pay it back later. And this repayment usually comes with interest.

It might sound bad, but it's something that can also be very helpful. It's like a double-edged sword that you can use to help you, but also harm you.

And I'll try to provide as much detail about debt as I can to make sure you understand properly what you're getting into.

Let's get started.

There are two types of debt, good debt and bad debt. Good debt is a type of debt where you borrow money and use it to purchase assets that can help you make more money.

One example is you borrow money to buy an apartment building and you'll rent that out to tenants. Though you're borrowing money, you used it on an asset that will earn you money back.

The money you earn can be used to pay back the mortgage, while the rest is put into your pocket. Bad debt, on the other hand, is a type of debt where you purchase something that won't generate any income for you.

An example would be borrowing money to buy a brand new and large Smart TV, going on a luxurious vacation, or getting a brand new car to get around.

Though these are fun, they just take money out of your pocket. This means you'll lose more money since you'll pay off that debt with interest.

If you look at their definitions, you can see that bad debt is the type of debt that you need to avoid and only get into good debt.

But it's not as simple as it sounds.

Getting into debt is a commitment. And it can be a long-term one if it's a huge debt or you plan on paying it back in installments.

This is where the issue usually comes in when you plan to pay in installments. The interest payment tends to get bigger.

Yes, you pay in smaller amounts every month. But in the long-term, you paid more. And this also applies even to good debts.

But for good debts, the consideration is a bit different.

If the asset you're buying is generating more than enough money than the debt installments, then you won't have an issue. But what if it's not enough?

Then there's also the consideration of the length of your installment payments. You need to make sure your asset will generate income much longer than the length of your installment payments.

If your income stops, then you'll have to pay back that debt out of your pocket. For example, your tenant didn't renew their lease and you have a hard time finding new tenants.

This means your rental income will stop, or you won't get to earn as much as you used to. The problem is, your mortgage payment won't stop.

So, you have to find a way to pay it back, even without your rental income.

This is why I say that you need to think carefully before getting into debt. Whether it's a good debt or bad debt, there will be factors that you need to consider.

Remember, when you get into debt, you are committing to paying it back accordingly. Not paying being able to pay it back is where the problem starts.

When you miss a payment, that's when you'll start to get bombarded with messages and then calls reminding you of your debt that you didn't pay.

It can be stressful to receive these calls and messages. So, think carefully before you decide to get into debt.

Make sure you'll be able to pay it back, no matter what happens to avoid experiencing problems.

"Debt is like any other trap, easy enough to get into, but hard enough to get out of." - Josh Billings.

Keep on learning,

The Unfussy Scholar

P.S. Please share this post to your family or friends who will benefit from reading it :-)