When you take out a loan, it is usually for a specific purpose, but some purposes make more sense than others. For example, it makes more sense to use a loan to fix up your house than it does to take a vacation. Here are five wise things you can do with a loan.
1. Buy a house
Mortgage debt is among the cheapest debt out there, with interest rates averaging around 3 to 4 percent, depending on your payback term. With a few exceptions, the past few years being one, houses usually appreciate in value.
Plus, everyone needs somewhere to live and better to put your money toward an asset you will someday own than to throw it away on rent.
2. Make home improvements
One of the downsides to owning a home is that when something breaks or wears out, you have to pay to fix it. Some of those things, such as a roof or furnace, can be very expensive.
But those things, as well as other improvements such as a new bathroom or kitchen, also increase the value of your home, which make them smart investments, even if you have to borrow money.
Interest rates for home improvement loans are almost as low as mortgages, making this a wise type of loan.
3. Go to school
Investing in a college education can be a very wise way to use a loan. Four years of college can easily top $50,000 and a state university and graduate school can pile on more debt. However, the difference in earning power between those with college graduation and those without is significant.
4. Consolidate debt
Taking out a loan to pay off a loan may not sound like a smart financial strategy, but it can actually save you quite a bit of money.
Credit card debt can be very expensive, as most cards have interest rates in the 15 to 20 percent range. If you have a lot of debt, the interest charges alone can cause you to struggle.
Consolidating this debt, either to another card with a much lower interest rate, or by taking out another type of loan, such as a home equity loan, can save you lots of money in finance charges, which makes it a very wise use of a loan.
5. For business purposes
It’s virtually impossible to start or expand a business without borrowing money. Although businesses sometimes fail, it’s still a wise decision to borrow money for this purpose, because if the business is successful, you will grow your income far more than what it cost to borrow the money.
If you are thinking of borrowing money for one of these purposes or another one, Money Supermarket loans are a good place to start. You can compare rates and find the right loan for you.