Home Eco-Nomics

Debt Isn't Always a Four-Letter Word

 

Debt can save money through low interest rates and inflation. Another reason that taking on debt can be positive is current low interest rates. Interest rates for housing loans are still low, but there are inflationary pressures all around which could cause these loans to rise significantly in the future. Locking in low interest rates means that paying off the house will be less expensive than if you buy when interest rates are higher.

In addition, if you are paying a fixed 6% on your house loan and interest rates rise to the point where you can earn 8% at a bank, you could actually earn 2% more than you are paying for the loan. While this is certainly not the case now, it is possible.

Some debt offers tax incentives. When you take out debt to buy a house, you get a tax break on the interest. While this in itself isn't a good reason to purchase a house, it is an additional incentive that can make taking on debt more positive than it might first appear.

Debt allows you to take advantage of special offers. To attract customers, many retailers often offer "buy now, no payments for x number of years" specials to get people to make purchases when money is tight.

By taking on this debt, the retailer is offering an interest-free loan for a set number of months. The hope is that when the amount is due, you won't have all the money to pay off the debt and the company can charge you interest. If you were already going to purchase the item, these specials allow you to keep the money in the bank and earn interest on it.

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Jeffrey Strain has been a freelance personal finance writer for the past 10 years helping people save money and get their finances in order. He currently owns and runs SavingAdvice.com.

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