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Be the Master of Your Long Term Debt

In matters of personal finance, debt can basically be divided into two types: long term and short term.  For accounting purposes, any debt less than one year in repayment is short term.  Being responsible with your long term debt is an important goal in personal financial planning that you should make every effort to accomplish. There are many types of long term debt that you will probably consider.

Find out now: How much mortgage can I afford?

The most obvious are mortgages, car loans, and debt needed to pay for college.  Each of these and other types of long term debt, if borrowed and paid back responsibly, can be a tremendous asset for your professional and personal development.  If handled poorly, the results can be catastrophic consequences that could last for a period of decades.

When borrowing money, the first matter to be resolved is do you need to take on the debt to achieve your objectives.

Mortgage debt

The need for a home is understandable.  But before signing on to a 30-year mortgage, make sure that there are not better alternatives.  Thirty years is a long time: there is a very good chance that you might have to move before then.  As investments, homes have not been that great in recent years.  You might be better off renting than buying.  Let someone else worry about the resale value of the property and the costs of home ownership.

The same holds true for an automobile.

Automobile debt

Ask yourself: do you really need a car?  Alternatives such as ZipCar, where you can rent a motor vehicle by the hour, make it much easier to not have to own a car.  Public transportation is widely available, particularly in urban areas.  Online realtors such as Ebay, Amazon and others will deliver much of what you need.  Make sure you need a car or truck before signing on the dotted line for a long term loan for a motor vehicle.

Student loan debt 

This is also the case for student loans.   There are many professions that pay well that do not require a college education.  If higher education is a necessity for your career choice, then explore all the alternatives other than four years at a school that force you to go deeply into debt that could last for decades.

Community colleges offer a great education at a fraction of the price of a private university.  You can also take classes over the Internet.  There are many programs that also allow you to work fulltime.  Still others will pay for your education in exchange for service, such as ROTC with the military.

Be very careful in co-signing for any debt, not just long term.  You are as responsible for that loan as the primary borrower.  Whatever your co-sign for will show up on your credit report.

If you do decide that long term debt is the right choice for you, than adhere to all the terms.  Be a responsible borrower and pay it back as the terms require.  That will help you earn a high credit score, which makes borrowing in the future easier and cheaper.  When taking on long term debt, remember that the borrowing it is to serve your needs, not make you the servant of the loan.

Photo Credit: msaari

Benjamin Roussey
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