Reasonable vs. Unreasonable Debt
Avoiding debt and bankruptcy isn’t always easy, especially when necessary expenses put a hole in your pocket. But while some debt may be hard to avoid, other forms of debt can take place due to financial negligence. In this article we overview the difference between reasonable and unreasonable debt, and how you can avoid falling into the pitfalls of irresponsible financial activity…
AWhen we speak of reasonable debt we’re talking about items that are more on the scale of necessity vs.luxury. These are basic tools or vital things used to improve our general way of life.
1. Buying a new house
It is very rare that the average American can pay upfront money on a home, which is why loans are such a very important commodity. Of course, in 2008 we saw the abuse of such loans with the eruption that shook up our financial institution. After the gratuitous use of them, we finally realized that there should be strict laws enforced on who is able to be granted such loans. That should not suggest that if a financially responsible person is in legitimate need of them that they should be denied. Housing is a basic human need so this is a reasonable debt, so long as the home purchase is being paid off in a timely manner and is not excessive otherwise it is hard to classify it as such.
2. Purchasing a reliable vehicle
As people have to travel further distances for work, school or child care, it is a fair request to want a safe and reliable vehicle. This also falls under the category of not being excessive with the purchase to allow it to be a justifiable debt expense. Let’s be honest, who doesn’t want a jaguar or Ferrari?? If you can afford it outfight by all means that is your choice, however if you don’t want to be in debt for many years to come, be realistic on what your choices are financially in this arena then go from there.
3. Student loans
There is a lot of debate on the topic of student loans with this current political campaign. Hopefully it will create momentum for improvement this area if we want a future with well-educated people in our country, yet as it stands education is incredibly expensive. With the current state of things, if one wants to get a leg up in the financial word as the saying goes “you have to spend money to make money”. For that reason taking out loans towards a college degree is understandable. The choice of what you decide to have a degree in can make or break how much money you obtain and how long it will take to pay off these loans. So if having a specific degree appeals to you, make sure you understand the monetary implications involved and what is important to you. Determine if your career path is in demand and thriving or if it will be a difficult financial path. The choice is yours ultimately so invest in your education wisely.
4. Relocation for better work/life
Sometimes circumstances change and you need to adapt with them. Being offered a job in another state or city where your quality of life while improve in a facet that matters to you is a step in that direction. Having temporary debt knowing your relocation is for the benefit of the situation is a reasonable debt.
5. Family health care
Life is unpredictable, some things are unavoidable. The current state of our health care system has left gaps in many people’s lives, so when a situation occurs it’s important that we understand how debt can be reasonable in this case. Many times hospitals will negotiate paying off debt in increments to cushion the financial blow. Be sure to ask what they can do for you so your credit isn’t impacted negatively or you fall into bankruptcy.