If you’ve been reading my blog regularly, you know that debt scares me a little. But, what debt do I consider to be ok, and when do I think it’s absolute idiocy to take out a loan? And, more importantly, why do I believe what I believe when it comes to taking on debt?
In Part 1 of this two part series, I expressed that house loans were ok, but they should be paid off as soon as possible, and I also stated that car loans were idiotic. Check out that post and leave a comment if you disagree (or you can just leave a comment saying, “Right on! Preach it!” if you agree with my thoughts). 😉
College is quite import and there seems to be a larger percentage of the population attending a higher level of education each year. But, how are many of these young adults making it through this very expensive endeavor? College loans of course!
After graduation, the loan comes due and the debt repayment begins. Many students are forced into a job they don’t want because their loan needs to be repaid. Other students never find a job and end up declaring bankruptcy (1/5 of all bankruptcies are recent college grads). Occasionally, a student gets the job they desire, but they are still limited with their future plans because of the debt that needs to be repaid.
If you had the option to graduate college without an ounce of debt, you’d do it wouldn’t you? I’d snatch up that deal in a heartbeat.
Because of the reasons above, I am quite strongly against college debt! It is possible to save up for college and pay cash for each semester as it comes. It just takes a little bit of extra work! Once you graduate without any debt whatsoever, you’ll be happy that you put in all of those extra hours during your school years.
When employees get fed up with their bosses or just feel that it’s time they work for themselves, it’s quite likely that they’ll take out a loan in order to begin their business venture.
In addition to this, already-existing businesses may be looking to expand and need a little help from the bank in order to do so. This scenario happens quite often too.
What are the risks?
When I think about loans, I often think about the risk that comes along with that fresh debt. If I were to go out and start my own business, chances are that I will not make it. In fact, I have an 80% chance of closing my doors within the first 5 years.
What if I took out a loan for $100,000? After 5 years, I would have no income and a $90,000+ loan to repay. That doesn’t sound like a good scenario to me. This is why I am not a big fan of business debt.
A better solution
When I decided to start blogging for an income, it cost me only $44 for the first year. I obviously didn’t need to take out a loan, so there was very little risk. Plus, after making over $7,000 in that first year, I have developed a plan to ramp those earnings up to $40,000 in the second year.
There was no loan, which made my business very low-risk, and now there appears to be no limit to what I can earn! It’s a way better deal than borrowing money for something that will most likely fail.
Have you ever taken out a loan for college or for your own business and wish you hadn’t? Or, maybe you’re glad you did. Let me know your thoughts on my beliefs!
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.