The hard and fast rule is to get yourself out of debt and stay clear of it. However, circumstances may force you to take out a loan. Not everyone can purchase a home outright and might have to take a mortgage. However, before you opt to get yourself into debt, try to consider how much debt can you really afford.
Credit cards are a no brainer. Hardcore personal finance advisers would tell you that there’s absolutely no need to get a credit card. It’s simply because, often times, you’d be using it buying everyday stuff that you should be able to afford with cash.
Now, larger loans such as housing and cars are different since they often alter the way you spend not only in a monthly basis but in general. Payments will factor in as a recurring expense and you have to adjust your lifestyle if you want to get out of debt fast.
Do the math. Low monthly payments but longer term, means you’ll be throwing away a lot in interest. So the key for large debts is to manage a couple of key factors: the equity that you can afford and the amount you can pay monthly.
The larger the down payment or equity, the lesser the loan (the lesser the amount on which interest will be slapped). The shorter the term, the lower the interest. So the key is to effectively configure them so that you pay as quickly as possible and pay as little as possible per month.
Just make sure that you can afford it before committing yourself to it.
