Think care­fully be­fore you bor­row

Franklin County News - - YOUR LOCAL NEWS - GEOFF SMITH

Every day so­cial ser­vice agen­cies which of­fer bud­get­ing and fi­nan­cial ca­pa­bil­ity ser­vices see the de­struc­tive ef­fects of debt as they work with in­di­vid­u­als and fam­i­lies to try and get them on track and debt free.

The mean­ing of debt is sim­ple – some­thing owed for some­thing bor­rowed or per­formed.

A lender loans you an agreed amount.

Un­til you re­pay the sum, usu­ally plus in­ter­est and fees, you are in debt.

The dan­ger of debt comes when money is un­nec­es­sar­ily bor­rowed or when it is bor­rowed without the means to pay it back.

It may seem crazy at first, but debt isn’t nec­es­sar­ily a bad thing.

It’s how you use it that’s good or bad.

And if you use it the right way, debt can have a lot of ben­e­fits.

It sounds com­pli­cated, but it doesn’t have to be.

You just need to know a few things about how debt works and how to use it in your favour.

Good debt is when you use the money lent to you to buy some­thing that of­fers a re­turn on your in­vest­ment.

A mort­gage is con­sid­ered good debt.

As­sum­ing the value of the house will go up over time, you will be able to make money when you sell it.

Stu­dents loans can also be con­sid­ered good debt if you are in­vest­ing in your ed­u­ca­tion so you can get a bet­ter, higher pay­ing job in the fu­ture.

Credit cards can also be good debt – but in a dif­fer­ent way.

When you use a credit card and pay it off in full and on time each month, it helps you build your credit his­tory and credit score.

It shows len­ders that you can take on debt and han­dle it re­spon­si­bly, which will help you get a bet­ter deal on other, big­ger loans, like a mort­gage, at some stage in the fu­ture.

Bad debt is ba­si­cally when you use a loan to buy some­thing that loses value over time or doesn’t of­fer you any re­turn on the in­vest­ment – so no way for you to make money on the pur­chase.

A loan to buy a new car is con­sid­ered bad debt, be­cause the car loses value the second you drive it off the yard.

That’s why buy­ing a used car is a bet­ter deal, un­less you plan to keep a new car for at least 8 to 10 years.

Some­times cir­cum­stances may mean you just have to bor­row.

Go to the bud­get ad­vi­sor/ fi­nan­cial ca­pa­bil­ity agency that will give you good and free ad­vice.

They will also give you in­for­ma­tion to help you at least un­der­stand the cost of the de­ci­sion you are about to make.

The Min­istry of Con­sumer Af­fairs have brochures such as ‘‘Be­fore You Bor­row’’ which give you the 10 ques­tions to ask be­fore you sign up.

And fi­nally, be very wary of the mo­bile traders or truck shops.

Mo­bile traders of­fer a range of dif­fer­ent prod­ucts.

Al­most all prod­ucts tend to be sold at prices which are sig­nif­i­cantly higher than the cash prices for a com­pa­ra­ble prod­uct pur­chased from a main­stream re­tailer.

For ex­am­ple, a mo­bile phone sold by the mo­bile trader at $1950 to $2152 could be pur­chased else­where for $494 to $899.

Or a PlayS­ta­tion at $1500 from the mo­bile trader but else­where $390 to $530.

Mo­bile traders ap­pear to rely on re­peat busi­ness with ex­ist­ing cus­tomers which they fre­quently ap­proach to sell ad­di­tional goods when they are close to pay­ing off the amount owed.


Letters should not ex­ceed 300 words and must have full name, res­i­den­tial ad­dress and phone num­ber. Write to Letters to the Editor, Franklin County News, PO Box 14, Pukekohe or email julie.kaio@fair­fax­me­

Geoff Smith

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