Friday, December 21, 2007

Should You Be Borrowing More?

Yes, borrowing more. More people than you might think are racking up the wrong kind of debt, when they don't need to be. Take a look at these debt situations:



The total amount of debt is the same, with drastically different amounts of interest. Don't forget that student debt has deferred payments and is often tax deductible, making it even better than credit card debt.

Students and recent grads often develop terrible financial situations simply because they aren't taking out enough funds through their student loans. Recent grads are often paying back too much, since they feel their student debt is a burden.

If you think about it, it's totally silly if you have credit card debt, but thousands do it. The interest rate is probably much higher and will be more burdensome in the long-run with a credit card, and student loan interest is often tax-deductible and doesn't impair your credit score.

Hundred of thousands of students often borrow money only to cover tuition expenses. Instead of taking out more money for living, food, and other school expenses, they just rack up credit card debt.

The same goes with recent graduates who have agreed to an accelerated loan repayment schedule, which doesn't give them enough money to get by on.

As the new year and new semester is coming around, take a look at your spending over the last several months and see if you need to be borrowing more from your student or home loan. If you're a student, contact your financial aid office to increase your loan amounts and have the funds transferred to your bank account (if you have the self-control to use it wisely) -- you might even be able to get enough to pay off your credit card debt. If you're in the repayment process, call your lender to see if your monthly payments can be reduced, so you don't have to depend on your credit card.

Remember, no matter what the so-called pundits say, getting rid of credit card doesn't have to be solved by cutting spending dramatically. Managing your loans and lowering your interest rates is often much more effective.

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