Seth Godin wrote
“Only borrow money to pay for things that increase in value.
It’s a short list: your business, your house and your education, mostly. Stocks if you’re smarter than me. That’s pretty much it.”
He goes on to say that the problem comes from credit card debt for consumer goods. And even if you then spend cash on more things, as long as you have a credit card debt, you are in fact buying things with money you have to pay large amounts of interest for.
Have a look at his post for the strategies to overcome that problem.
I want to add another good opportunity:
Borrow money for things that save you money.
SolarPay.com.au is based on that. Buy a solar hot water system even if you have to finance it. The savings will pay for the system and continue to put money in your pocket.
Another example would be buying a car that uses less petrol and does not need expensive maintenance, rather than running an old bomb that needs constant attention.
In both cases though (whether you borrow money to buy something that increases in value or something that saves you money), you have to make sure that
- the financial benefit is greater than the interest
- you can actually pay it back
Thanks Seth for the inspiration.