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When Is It Smart To Take Out A Loan?

Debt tends to get a lot of bad press. But, then again, debt has always gotten a lot of bad press. Ever since ancient times, going into debt has been viewed with a certain degree of scepticism. Most of the time that scepticism was valid. After all, there weren’t so many economic opportunities in the past. Debt, therefore, wasn’t used to invest for big payoffs in the future. It was used to finance present consumption at the expense of the future.

But this image of debt has remained a part of our culture ever since. Debt is something that is undesirable and something that makes us poorer. But is this the right attitude? Here it will be argued that it is not the right attitude. In fact, there are many circumstances in which individuals should take out a loan if they want to make themselves better off in the long run. Let’s find out what they are.

When You Need Money To Start A New Job

Let’s say you’ve just bagged a new, better paid job. Fantastic!

There’s just one catch. This new job is in a different State. Right now you don’t have the money to pay for the move. You can’t pay the estate agents’ fees, the removal costs and so on. So what should you do?

Well, clearly this is a situation where taking out a loan makes a lot of sense. Here, you have the opportunity to earn far more money than you are doing right now. And all that’s standing in your way is the few thousand dollars needed to move home. In this situation, the answer is clear. You should take out a loan because taking out a loan is going to make you richer, in the long run, thanks to your new job.

dream-job

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When You Need Money To Continue Doing Your Job

Suppose you’ve got a job and everything is going well. But suddenly, one morning, you’re driving to work, and your car breaks down. You take it to the garage, and it’s bad news: you need a new clutch. Clutches don’t come cheap, and you don’t have $1,000 to hand to have it repaired. What should you do?

This is where a personal loan, like those from Personal Money Store, can come in handy. Taking out a personal loan in this situation is a good idea since you’re dependent on your car for your income. A personal loan that covers the difference between what you can and can’t pay means that you’ll get a paycheck at the end of the month.

car

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When You’ve Had Business Idea

In the past, the majority of debt in the economy went to finance businesses. It allowed lenders to get a return on their money that they couldn’t have gotten if they’d just kept cash under their mattresses. Businesses would take the money, build up their capital, start selling, and then make back all the money they’d borrowed and more.

This is where debt can really shine. If you’ve had a great business idea, start asking people for finance. If you’re able to get finance, it partially confirms that your idea is actually good. (After all, if it were a bad idea, lenders wouldn’t want to risk their money).

Again, this debt is good debt because it is debt that will make you richer in the future. Once you’ve bought all your office equipment, or kitted out your workshop, you’ll be able to start making money. And in the long term, if you’ve had a great business idea, you’ll make a lot more money than you borrowed.

Of course, many businesses do not succeed. So before taking out a loan to finance your new business idea, do your research and be critical of your own ideas.

When You Want To Invest In Yourself

What is your biggest asset? Is it your house? Your car? Your pension plan? No. It’s you. Over the course of your lifetime, you have the capacity to earn millions of dollars, far more than any of your assets. And as a result, you are the most valuable thing you own. It sounds cheesy, but it’s true.

debt-pay

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Going into debt to pay for education can be a good idea, because, like other investments, it should pay dividends in the future. With a better education, you can expect higher wages and a better standard of living.

There is an argument to be made, however, that some college courses don’t really add to your worth. Liberal arts degrees, in particular, aren’t highly valued in the real economy. It’s clearly worth investing in education still, but it might be worth choosing a different route. You could invest more heavily in professional qualifications in your chosen field. Select areas that are likely to be in demand in the future. Anything involving computers is likely to be heavily sought after. So too will anything involving life sciences.

When You Want To Expand A Business

Suppose that when you started your business, your product was quite niche. You had a few buyers, but it was clear that, in the current market, your business was about as big as it could get. But then, suddenly tastes changed, and everyone wanted your product. Soon you couldn’t fulfil all your orders and risked turning customers away.

It’s in situations like these that companies should go into debt. They should take out loans to open new shops and warehouses, hire more staff and up their marketing campaigns. Here, again, is an example of how going into debt increases your wealth in the long term. It allows businesses to expand faster than they otherwise could, and in return, those companies end up more profitable.

profit

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About Subodh Tandon

Subodh is a full time marketing consultant and a skilled blogger. His area of interest belongs to marketing and finance related news and love to share all of those topics over the internet. You can catch him directly through this blog.