Debt seems to be a necessary evil in life. You need it to buy a home, a car, bed, furniture, etc. It seems like every time you turn around, there is someone offering you a way to get into debt for something.
But how do you know whether or not it’s a smart move? You must ask yourself these two questions first:
- “How much will it cost?” (it being the debt)
- “Can I afford it?”
You want to know how much it will cost so you don’t end up with terms that don’t work out for you. Like having a balloon mortgage due in 5 years after low teaser interest rates. That didn’t work out quite well for many people in 2007-2008.
How much can you afford is a harder question. You have to consider the kind of future you want. If you don’t want debt servitude and are willing to sacrifice a bit now, then stick with low payment conditions that don’t lock you into any long-term contracts. Especially during periods of economic volitility.
Using the good old 80/20 rule, 80% or more of the stuff you see offered with financing is stuff you don’t really need to have. The only three needs we all have are: food, shelter, and clothing. Period.
So keep these two questions in mind next time you’re shopping around for debt.
