Home > Personal Finance > 7 Smarter Ways to Use Debt in 2018

Comments 0 Comments

In the world of personal finance, debt often gets a bad rap. Financial gurus sometimes say you should avoid borrowing at all costs and pay for everything in cash. It’s not hard to guess why; debt is the No. 1 source of financial stress for millennials, according to a Student Loan Hero survey.

However, debt offers a significant benefit. It can facilitate important financial moves to get you closer to the life you want. When used wisely, debt can open doors by getting you the cash you need to take advantage of today’s opportunities.

Instead of fearing debt, consider how you can make this financial tool work for you. Here are seven moves you can make with your debt or credit in 2018 to add to your bottom line and get closer to accomplishing your goals.

1. Improve Your Credit

In simple terms, your credit reveals how responsible you are with borrowing and repaying money. This means that any debt you have, from revolving credit to installment loans, can help you build credit and raise your score.

Of course, it’s not wise to borrow solely for the purpose of improving your credit. But if you work to manage your debt well, it can help you work your way up to an excellent credit score.

Setting up automatic payments and due date alerts for your existing debt is an easy way to manage it. Always paying your bills in full and on time is the best thing you can do for your credit. Automating the process and setting up reminders can prevent mistakes that ding your credit.

2. Lower Your Debt Costs

If you have a loan or credit balance that’s costing you way too much, consider replacing it with a cheaper loan. That’s exactly what happens when you refinance or consolidate debt.

Review your debt and check for any accounts on which you’re paying too much interest. For instance, all of the following are popular ways to lower debt costs:

This is especially beneficial if your credit score today is better than it was when you first took out the debt. With a better score, you could qualify for lower rates on a new loan.

You’ll also be more likely to save if you’re replacing high-interest debt with a different type of loan that costs less. For example, you might consolidate credit card balances with a personal loan, which typically offers lower rates.

3. Invest in Yourself

A great use for debt is to make yourself a more valuable asset. The most obvious way borrowers use debt to invest in themselves is through student loans. These loans make it possible for many people to earn an undergraduate or advanced degree.

Another option? Take out a personal loan to pay for a coding bootcamp. It could lead you to a more lucrative career path or a certification that could help you earn a promotion.

Make sure the program you’re borrowing for will lead to a positive return on your investment. Most colleges and some certification programs track how well their students succeed after graduating. Ask for any data that can reveal the jobs and earnings graduates see.

You’ll want to look for high salaries and employment rates among graduates. These can be indicators that you’ll have no problem finding a well-paying job.

4. Start or Grow a Business

Maybe you already see an opportunity to start a business or grow your side gig. If you want to make your move this year, it’ll probably take some cash to get going.

That’s where a business loan can help. You’ll get access to the capital you need, when you need it.

In fact, a Fundera survey on how small business owners borrow money found that most did so to grow their business. The top reasons for taking out a business loan were “working capital” (49 percent), “purchasing equipment” (42 percent), and “expansion” (37 percent).

With the opportunity to increase your company’s value or generate more income, business loans have the potential for big payoffs.

5. Get Rewarded for Everyday Spending

Get more out of your credit accounts by using your rewards credit cards to their full potential. Review your current cards and see if any have stellar reward offers or programs that might match an upcoming purchase. It might make sense to start spending more on a travel rewards card, for example, if you’re planning a big vacation this year.

Look at your spending habits, too. Two-thirds of Americans say they make purchases primarily with cash or debit cards, according to a TD Bank survey. If you fall into that group, using your top rewards cards could be a simple way to get more out of your regular purchases.

Just don’t forget to actually claim your rewards, especially if they expire. You should also pay your credit card balance off in full each month to make sure your rewards aren’t erased by interest charges.

6. Build Equity in a Home

Buying a home usually means taking on a mortgage and getting into debt. But unlike other debt on depreciating purchases, this type of loan can actually help you build your net worth.

If you buy a home, for instance, your mortgage allows you to pay for a place to live. But it has the dual role of building equity in your home, too. With each payment you send in, you own a little more of your home outright. And any increases in your home’s value after purchase gets added to your equity.

7. Pay for a Major Life Step

It’s a great idea to save up for big life steps, such as getting married, having a child, or moving across state lines. But the truth is, these things don’t always happen at the perfect time or in the way you’d hoped.

Maybe you saved to start a family, for instance, only to face fertility challenges. Instead of the uncomplicated pregnancy and delivery you saved for, you’re paying for pricey fertility treatments or sky-high adoption fees.

Debt can give you the opportunity to take a major life step when you otherwise couldn’t cover the cost.

Always look before you leap into debt

One big caveat: While debt can be a tool to help you achieve your financial or life goals, it should never be taken on lightly.

Consider all your options and make sure you turn to the most affordable forms of debt first. Weigh what you’re using a loan or credit line to pay for. And ask yourself if the value you’d get is worth the debt.

Making informed decisions is key to ensuring your debt is getting you closer to your financial goals, instead of setting you back.

If you’re concerned about your credit, you can check your three credit reports for free once a year. To track your credit more regularly, Credit.com’s free Credit Report Card is an easy-to-understand breakdown of your credit report information that uses letter grades—plus you get two free credit scores updated each month.

You can also carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.


Image: iStock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other sponsored content on Credit.com are Partners with Credit.com. Credit.com receives compensation if our users apply for and ultimately sign up for any financial products or cards offered.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team