It seems like the consumer debt problem of Americans will never really go away. Despite everything that we have gone through during the Great Recession, consumers still continue to borrow money. You cannot really blame consumers because our society is set up in such a way that makes credit a necessity. It is not really a necessity for our survival, but there are a lot of benefits to borrowing money. For instance, you can buy a house using cash but it is too expensive. It will take you a very long time to save up for the cash. Instead of paying for rent the whole time, you can use that money to pay for your monthly amortization. Just save up for a down payment (around 20% of the selling price of your dream home) and then you can use a home loan to finance the rest of your home purchase. While you are paying your home loan, you are growing equity in your house. That means you are increasing your personal net worth as you pay back what you owe.
When you continue to rent a house, you are just making your landlord rich. When you own your house, even if it is through a home loan, every payment is actually adding more into your financial worth. Your house becomes more and more your asset.
Of course, you should never take on debt lightly. Although your debt is something that will benefit your finances, you still need to be smart about it. If you can find a way to make your debt pay for itself, then that would be the best arrangement that you can ever hope for.
3 debts that can pay for itself
Believe it or not, three of the most popular debts in the country can pay for itself. You just need to know how to arrange it so it makes money for you. That cash can be used to help pay for the monthly dues that you are required to pay.
Here are the three debts that you can arrange to pay itself.
Let us start with the biggest debt that we owe – the mortgage. We have discussed the advantage of borrowing money to buy your house. No matter how you look at it, you are a winner here. As you pay your monthly amortization, you are increasing the home equity of your house. That means you own more of the value of the house. You can actually use that to your advantage in case you need some cash in the future.
But that is not how you can make your debt pay for itself. When it comes to making your house earn enough for your mortgage payments, the best way to do that is by renting out your house. Before you buy a house, it is best if you choose a property that has a garage or basement that you can rent out. That way, you can live in the main house while a part of your house is being leased.
An article from Investopedia.com has a great tip for homeowners. If you are in a situation wherein you cannot make timely payments, renting out a portion of your house might be the best way to keep your home despite your financial situation. Apart from leasing a garage or basement, you can get a roommate instead.
The next debt that you can arrange to pay for itself is a car loan. Now this is crucial because unlike a house that appreciates over time, your vehicle depreciates as soon as you drive it from the dealers. If you have to make your debt pay for itself, this is the debt that you need to generate income from.
The challenge is, how can you do that with your car? Credit has three tips that you can use.
- Drive it. The article mentioned that you can use ride-sharing options like Uber or Lyft. There are also customer-centered options like Shuddle (great for families and kids) and SheTaxis (for women). If you have the requirements that will make you eligible for this, then you may want to make your car work for you. Whatever you earn from this can be used to help you pay for your loan. If you want to use your car privately, you can simply turn off the app and drive off.
- Rent it out. The second advice of the article is to turn your car into a rental car. This might be difficult if this is your primary car. You may be better off with the first option. But if you have a second car that you do not use all the time, you can have it rented out for a couple of days and then earn a profit from it. The article mentioned that some rental cars earn an average of $500 a month. That is not bad if you do not need the car on a daily basis. If you purchased this second car through a car loan, this is a great way for you to make your debt pay for itself.
- Deliver packages. The last option provided by Credit is to use your car to deliver items. This is something that you can do on weekends or your free time. It is expensive to have bulky items delivered. If you have a van or any other vehicle that is roomy enough to haul big items, then be a delivery vehicle.
The last debt that you can arrange to pay for itself is your credit card debt. Now this is something that works differently than the other two. You will not rent it out to earn from it. You will take advantage of the rewards that you can get from it. In essence, what you will get from credit cards will not really be used to pay back what you owe. But if you use the rewards properly, you can save your money. One article published on WiseBread.com revealed how the rewards from a credit card can help fund your travels. Apart from that, you have cash back rewards that literally give you your money back after a purchase. Here is a video that talks about the hidden benefits that you can get out of some credit cards.
Tips to make paying debt easier on your budget
Even if you cannot make your debt pay for itself, there are things that you can do to help you meet your debt payments. There are certain measures that will help you increase your debt payment fund. But beyond that, there are things that you can do so you can make it easier on your budget.
- Know your financial capabilities. This is the best way for you to know how much you can afford to pay. Study your finances so you can see just how much money is coming in each month. You should also check out your expenses so you can see how you can fit your debt payments in.
- Understand your options. Once you know your capabilities to pay, you can choose the debt solution that you will use. There are many programs that you can look into. There is a specific debt relief option that is suited to your unique financial situation.
- Include debt payments in your budget plan. If you do not have a budget plan, now is the time to create one. If you have one already, revise it so it makes room for your debt contributions.
- Do not be afraid to talk to your creditor or lender. Be honest with your creditor or lender and tell them about your financial situation. If you cannot afford to pay your dues based on the current terms, negotiate for a new one. Indicate that you intend to pay your debt but it is just hard to meet it because of your financial situation. They are bound to listen as long as you have the intention to pay off your debt.
Think about these tips if you cannot make your debt pay for itself. As long as you have the will to pay what you owe, you will find a way to meet your credit obligations.