How to Make Debt Work for You!

Forget what your parents told you, not all debt is bad. Good debt can help you move forward. Here are five ways to make borrowing work in your favour.

Time to rebuild your credit history?

Thinking of buying a house or making another big investment? The first thing a loan provider will look for is a good credit history. Don’t panic just yet!

Until 2014, a credit report only recorded the negative information, such as enquiries, defaults and bankruptcies. Nightmare! But now we have what’s known as a positive or comprehensive credit reporting system. This allows organisations you’ve borrowed from, who participate in the comprehensive credit reporting system, to provide information about your accounts and how well you’ve managed them, such as whether you make your payments late or on time. Which hopefully you’ve been doing…

These accounts could include mortgages, personal loans, car loans, credit cards and store cards

This might sound a bit scary and intrusive but there’s a definite upside. You could even set out to improve your credit history by using cards or loans in a proactive way. For example, if you’re a new borrower, taking out a personal loan, car loan or credit card and consistently making your repayments on time could help you to establish a good credit history more quickly.

A personal loan for a better job

We all know that education and training can help you secure a job you enjoy, along with better pay and a bigger nest egg for your retirement. But, these days, a single qualification may not take you as far as you want to go. The job market is changing faster than ever as new technologies continue to disrupt industry after industry, creating a demand for new skills. In fact, some of the most in-demand occupations such as data scientists, app developers and cloud computing specialists didn’t exist 10 years ago – and the pace of change is more likely to pick up than slow down.

The best way to succeed in this environment is by being flexible, open to change and, most importantly, willing to keep learning. But like most things these days, learning rarely comes free. Whether you’re a tradie looking to add a new skill to your tool belt, or a manager with your eye on an MBA, a personal loan could open up unlimited opportunities for your future. You could use a personal loan to fund part or all of your vocational studies or a course not covered by student government loans, such as those offered by private schools and colleges. It could also help you pay for all the materials you’re bound to need for your studies.

Make a car loan count

Most of us rely on a car to get to work or study, ferry the kids around or have a decent social life. That usually means taking out a car loan, and the first step to making that work for you is to be realistic about your budget. That means factoring in all of the related expenses such as insurance, registration, maintenance and fuel as well as repayments on the loan itself.

When it comes to choosing a car, there’s a lot to be said for a brand new vehicle. For instance, a full manufacturer’s warranty can give you peace of mind for up to seven years; plus it’s shiny and smells lovely. The downside is that new cars cost more upfront and depreciate rapidly, though that will be less of a problem if you aim to hold on to it for a while.

A used car could cost less and, if it’s a recent model and has been well looked after, it might even pass for new. However, be sure to check-in to see if the manufacturer’s warranty has expired, as you might only have a three-month statutory warranty from a dealer, or no protection at all if you bought the car privately. Whether you opt for a new or used car, your best bet is to invest in an inspection by a qualified mechanic to get a professional opinion of the condition of the car and what it’s worth.

If you don’t have a vehicle to sell or trade in, saving a reasonable deposit will reduce the size of the loan so you’ll save on interest.

Consolidate debt and save

When you have a number of debts, rolling them into one could help you save money in the long term.

A debt consolidation loan can make life less complicated and stressful. You’ll have just one repayment to think about each month, and one statement, rather than multiple texts from institutions reminding you that your payment is due or is late. You could also find it much easier to budget when you’re not trying to keep track of a number of different payments.

Just as with any other loan, it’s important to do your research. There’s no point in consolidating your debt if you end up paying more interest. There will also be costs involved, such as an early termination fee (if applicable), so you need to weigh these up against the possible savings. But the biggest risk for many people is that they might be tempted to apply for more credit before their debt is cleared. It’s vital that you draw up a realistic budget and stick to it, so you don’t find yourself in even deeper debt.

A personal loan for a more valuable home

Renovations can be a great investment – the right improvements could add thousands of dollars to the value of your home. And there are a number of ways to finance your project.

If your home is worth more than the amount outstanding on your mortgage the difference is known as equity. You may be able to draw on this for renovations – in fact, some home loans have a redraw facility built in.

If you’re looking for a faster, easier solution a personal loan might be a better choice. This will generally work best for non-structural renovations such as installing a new kitchen or bathroom, or adding a pool. You might also pay less interest overall as the term of the loan will be shorter than those linked to your mortgage. If you have the discipline to pay the debt off quickly, a credit card is another simple and straightforward option.

Time to take out a personal loan?

There are so many ways that you can get ahead in life with the right amount of capital at your disposal. Work out how much you need, how quickly you can pay it back and what it’s going to cost you. Then take your life forward!