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So, why borrow and put yourself under their power?
Every year, Americans grow more and more comfortable with carrying debt. It’s becoming a natural part of our lifestyle -financially enslaving ourselves to others.
Harmful debt
Take a look at any group of people walking down the street, and more than half will hold debt in one of the following categories below:
Cosmetic Real Estate
This type of real estate is the house you buy out of necessity, or you might have purchased more house than you can afford to showcase your status.
Cosmetic real estate doesn’t build wealth. It usually only adds debt and a lifetime mortgage to your list of financial obligations.
Student Loans
A student loan is classified as a harmful debt because many students often take out more than they can pay back in a reasonable amount of time.
Currently, student loan debt at graduation is an estimated $31,100. Despite the rising cost of tuition, graduates who have been out of school for years often owe more than new graduates due to interest rates. The average total student loan debt-to-income ratio (DTI) for a new graduate is 54.6%. (Education Data)
PayScale data shows the typical graduate with zero to five years experience makes $48,400-$60,000 a year, which does not make paying off their student loan balance manageable.
Credit Card Debt
One of the most avoidable types of debt and one of the most accessible types of debt to get ahold of is credit card debt.
At almost a trillion dollars outstanding, credit cards are the largest consumer lending product by number of users – over 175 million consumers have at least one credit card – and one of the largest sources of consumer debt. (Consumer Finance)
Taxes
If you’re not careful or you’re neglectful, you will find yourself owing more in taxes than you ever imagined. The best way to avoid this type of situation is to always pay your taxes on time and file your taxes each year.
Car Loans
Many people have a car, but can they afford the car? Most people can’t. Yet, somehow, many people still drive a car, and often the car is way out of their budget. Car loans eat away at our budgets every month, and we have no problem with it.
Other People’s Debts (e.g., co-signed loans)
At all costs, try to avoid co-signing loans. If a person needs a co-sign, this means one or two things:
They don’t have enough credit history to get a loan themselves.
They don’t have responsible credit history to get a loan themselves.
The second reason is the most popular amongst people needing a co-sign.
Other times we take on financial responsibilities that belong to others. Those who are charitable often fall into this trap but try to avoid taking on others’ financial obligations. There are ways to provide financial assistance to others without locking yourself into a short or long-term commitment.
Debt That Isn’t Harmful
Some debt isn’t as harmful if you’re careful and use it to build wealth, such as rental real estate. One of the reasons the rich get richer is because they have mastered debt management strategies.
The rich are the lenders (masters). The borrowers are the servants who pay interest most of their lives to use rich people’s money.
“The poor are always ruled over by the rich, so don’t borrow and put yourself under their power.” (Proverbs 22:7 MSG)
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.