Many people are often hesitant to take out loans and enter into debt. But do you know that debt can actually be “good” depending on how you deal with it?
Similar to fire, debt is a good servant but a bad master.
So to be a master of debt, you need to first have the right mindset when it comes to taking out a loan.
These are 5 ways taking a loan can help you go further in life:
1. Frees up your cash flow to grow your wealth
If you know how to make use of affordable loans as well as invest, taking out a loan can free up your cash flow so you can grow your wealth.
What do we mean by this?
Let’s say you need a lump sum of $50,000 to renovate your home. If you already have the money in your savings, you have the choice of either paying for your home renovations entirely in cash with your savings, or financing all or part of it with a personal loan.
And let’s say the interest you are being charged for a personal loan with the bank is 3.5% p.a. If you choose not to take out the loan and finance everything in cash, you do not need to pay that 3.5% p.a. interest, so you save money.
However, if you choose to take out a loan of $50,000 to finance your home renovations with 3.5% p.a. interest, and you can invest the extra $50,000 in your bank account in an asset that can earn you a solid 6% returns a year, not only can you pay off that 3.5% interest comfortably, but you can also earn the extra 2.5%!
This is how the wealthy often make use of leverage to grow their wealth – they know how to make use of cash flow to make their loans and money work hard for them.
So do you want to save money or do you want to grow your money?
Of course, take note that all investments come with a risk of losing your capital as well. This method would only work if you really understand how to invest.
2. You are financing higher current monetary value with future lower monetary value
Many of us understand that with rising inflation, the value of our money hence our purchasing power reduces.
For example, maybe it will cost $8,000 to renovate your bathroom in 2022. But a year or two later, the exact renovation work using the exact materials and contractor would cost more than $8,000.
This is because the cost of materials would have increased due to inflation, which leads to the increased cost you need to pay as a consumer.
This means that if you are taking out an $8,000 loan now to finance this renovation, by the time you finish repaying it in full (together with interest) in a year, the $8,000 one year later no longer holds the same value as the $8,000 you are now borrowing.
You are effectively paying back less in value when you repay your loan, though the absolute amount of $8,000 remains the same. Of course, you have to factor in interest as well.
If the interest rate and total fees charged are less than the inflation rate, taking out a loan would be value-for-money for you.
This would especially be helpful for you if you are struggling with cash flow now, and are debating if you should take out a renovation loan to finance your home this year or save up to do your renovations next year – because you would likely need to pay more than $8,000 for the same renovations.
3. Helps you finance important events while you repay in instalments
Do you need to finance your wedding or higher education or make important purchases that require lump-sum payments but are financially struggling to come up with that lump sum?
Taking a personal loan can help you finance these important events while you repay in manageable instalments.
Finance higher education
If you are someone from a low-income family who wishes to pursue higher education but are not eligible for MOE’s Tuition Fee Loan or a study loan with the bank, a personal loan or a study loan with a licensed money lender will be able to help you achieve your goals.
You simply need to repay the loan in instalments, up to 12 months loan tenure.
Ultimately, education is priceless. The short-term pain of taking a loan now can help you go further in life as you improve your earning power after you upskill yourself with higher education. What you are investing in yourself now can potentially double, triple, or even quadruple what you can earn back in the future.
Finance your wedding
Need cash to finance your wedding and are thinking of using a credit card?
Do note that if you repay your credit card bills late, interest rates can be 25% per annum or even more. Hence, you will need to make that lump sum repayment in full, usually within a month when your bill comes in, to avoid incurring late interest which can cause your debt to accumulate.
If this is financially tough for you, it might be better for you to take out a wedding loan with a licensed money lender. You will be able to finance your wedding with this loan while repaying it in instalments that are financially more manageable for you.
Although a wedding may not exactly help you grow your wealth, marriage is ultimately a huge milestone, and it is definitely a crucial part of your journey and growth in life. So being able to finance this milestone without worry is important as well.
4. Enables you to supercharge your business growth
Are you a business owner?
Borrowing can help your business in various ways, such as improving cash flow so you can expand your operations, boost your business and supercharge your business growth, for example, by purchasing equipment and machinery, or even hiring more staff.
So don’t be afraid of debt if you are a business owner. As long as you can manage your business finances well and consider these important factors before taking out a business loan, taking a business loan is investing in your business’ future.
5. Debt consolidation can enable you to become debt-free faster
If you are struggling with multiple loans, you might want to consider consolidating your debts. Taking out a debt consolidation loan can help you pay off your multiple loans and combine all your debt into a single loan with a single money lender.
A debt consolidation loan often also comes at a lower interest rate as compared to your other existing loans or credit cards, so you can save more money and pay less in interest.
This will make it easier for you to clear your debts faster and be on track to greater financial independence.
Searching for a loan that can help you go further in life?
Your financial state may be a source of constant worry for you, due to your financial liabilities and expenses. And for some of you, you might be worried about taking out a loan that can push you into debt.
We hope our sharing above can give you a different perspective on taking out a loan. You simply need to be able to manage your income well and set financial goals for yourself, keep your finances healthy and develop good loan repayment habits so you can manage your loan well instead of allowing it to get out of control or consume you.
When managed well, a loan can be a good investment to help you grow your wealth or achieve your aspirations and financial goals.
At Soon Seng Credit, we offer low-interest loans with flexible repayment terms that can help you reach there faster. Our loan officers will also be on hand to give you financial management tips so you can strive to repay your loan on time consistently.