Ask These 2 Questions Before You Take on Debt

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:

  1. “How much will it cost?” (it being the debt)
  2. “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.

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 volatility.

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.

Tags: debt

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