Take On Debt Only When Necessary

Continuing in the Debt section of the How To Live Totally Free plan I warn you to take on debt only when necessary. Although credit is a great financial tool many people get in trouble with it rather quickly. And if you don’t have much income coming in, or are living off of savings, then you definitely have to be careful when using credit. You could find yourself in debt you can’t pay back unless you get a job again.

Why You Should Take On Debt Only When Necessary

The main reason you should avoid accruing any new debt while following this lifestyle because it will add additional expenses. And the more expenses you have then the faster you deplete your savings, or the more money you have to make. Thus, you could find yourself stressing out and having to get a full-time job again to get out of this financial trouble.

Now, this doesn’t mean you shouldn’t use credit at all. I use my credit card to pay my daily expenses instead of using my debit card. This is because credit cards have more fraud protections than debit cards. In addition, I gain rewards I can use. Again, debit cards usually don’t off that. Now I treat my credit card as a debit card, meaning I pay it in full every month. Usually I pay my credit card balance at least once a week. It just works better for me that way.

What I don’t want you to do is apply for a new credit card if you’re not going to use it. Or buy a car even though your other car or vehicle is running fine. With our consumer economy it’s easy to apply for new credit when you don’t need it. And it’s even easier to get in debt when you last expect it.

When Is It OK To Take On New Debt?

It’s OK to take on new debt if you are going to make a large purchase, and you have the cash in the bank to pay it off, and you won’t pay any interest on the purchase.

I recently bought a fixer-upper house and I knew it needed a new HVAC system. I put the $10,000 purchase on a credit card because I had a 0% APR offer for 12 months. Those terms made the decision easy for me because I could keep the money to pay for the system in the bank and continue to earn interest. Plus, I could pay for the purchase over the next year with no interest!

If you have a credit card or a loan offering similar terms and you need to pay for a large purchase then it’s fine to take on new debt. Just make sure you don’t over-leverage yourself.

If you miss any of the posts of the How To Live Totally Free series you can find all the posts here.

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