*The following is an article that I wrote in partnership with Digital Federal Credit Union, DCU*
While I’m a big proponent of paying off and eliminating consumer debt as fast as possible, I’m also an advocate of using debt responsibly as part of our financial and life toolbox. Without discipline and a clear plan, debt can be dangerous. With self-control and strategy, debt can be used in a responsible way to help us reach our goals.
Here are some ways that debt can be used to help further our ambitions.
Buying a home
Some of our most important purchases and investments would not be possible without having access to debt. For many, home ownership is a key way to build wealth. The average person’s wealth is derived from the equity in their home. For a vast majority of people, including myself, purchasing a home would not be possible without having a mortgage. When using a mortgage to buy a home, you should buy something affordable and within your means so that you are not stuck with payments that you can’t manage.
Paying for college
A college education and degree is still required for many careers. While you can choose to go to a less expensive school instead of a private university, you may still need to take out a student loan to help you obtain your degree. It’s important to only borrow the amount you’ll need to complete your education. Also, be strategic about your degree and your future income potential while you consider the types of student loans needed to complete your education. DCU offers private student lending solutions that could help you fill finance gaps.
Free travel & other points
Using your credit card to earn points for cash back allows you to save money on things you would typically spend money on anyway, like groceries and everyday necessities. You can even use your points to pay for things like vacations or splurge items. If you are charging items on your credit card to earn points, you’ll need to pay off your balance in full every month so that you don’t pay additional in interest and fees. For many, using a credit card on a day to day basis is not ideal, but for those that have their finances in order, it can be a good way to save or earn money. I’ve been able to go on trips for free just by using my travel rewards points.
Access to money in case of an emergency
Access to proper/safe debt like secured credit cards, including DCU’s Platinum Secured Visa could be helpful to have in case of an emergency and a much better alternative than going to predatory lenders. This credit card could help individuals establish or improve their credit score by borrowing securely against their savings account balance.
For individuals that might find themselves as part of underbanked or underserved communities, credit unions offer a safe place to help fund purchases at fair and reasonable rates.
Overall, it’s also important to educate yourself on the available debt options out there so that you know which ones to use and which ones to avoid. You have to be careful when using debt. If you can use debt wisely, it can be a powerful tool and give you access to opportunities and assets/investments that you normally wouldn’t have access to.