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When New Debt Might Be the Right Choice

3 examples of when new debt can be helpful.

One common money myth is that credit should always be avoided. There are a number of scenarios where new debt may be the best option, but sometimes it’s just hard to tell.

No Debt about It

Some financial advisers say things like “debt is dumb” and “run away” when discussing credit. However, often that’s just to ward off impulse buys, instant gratification, or items purchased on a whim. Indeed, a fun lifestyle of leisure is worth saving up for – not falling into debt for. In many cases, yes, debt is dumb. However, when emergencies arise, debt certainly can help.

The trick is to plan ahead, and to decide what exactly constitutes an “emergency” early. Here are 3 financial situations where credit may be your best bet.

  • When you get hurt or sick. Serious medical conditions never need to be deliberated. They are an emergency. Don’t spend a lot of time wondering whether a doctor’s visit (or worse, a trip to the ER) is “worth” the financial headache. Instead, take advantage of your doctor or health insurance’s advice line. The nurse on call will be able to tell you whether you should come in, and if so, when. Do not dismiss your medical professional’s advice based on financial concerns. Try to avoid preventable diseases and injuries altogether by being smart. Eat right, exercise, and use safety precautions so you don’t need to incur new debt to cover medical bills that could have been avoided.
  • If a dependent becomes injured or sick. Similarly, those in your care must be provided for, no matter what your bank account looks like. Take care of the people you are responsible for, and use new debt wisely if those you care for are in medical trouble.
  • Avoiding homelessness or joblessness. Sometimes if you don’t incur new debt, you’ll lose your job or house. In this case, enter a loan cautiously and with a plan in place to pay it back in full before the loan comes to term. This does not mean financing a brand new car to impress a business colleague or hiring a landscaping company to keep up with your neighbors. Instead, think necessity. Are you behind on your mortgage because of a lapse in income and need just one month’s worth of assistance to get back on your feet? Did the roof spring a leak or did the brakes on your car go out? Keeping your home and job are priority one since your health and income depend on their good standing.

Debtor Safe than Sorry

When these situations arise, you can turn to your emergency fund. However, sometimes that isn’t enough. Occasionally, catastrophes drain your bank account and leave you with more bills than you can pay. That’s when credit can help.

Then, once your situation has stabilized, it’s time to dig out of debt. Since life is unpredictable, getting out of debt can be tricky. So it’s a good thing you have a team of non-profit credit counselors that are only a phone call away.

You cannot predict the future, but you can prepare for it. Just know that if all else fails, credit can be a good safety net— as long as you have a plan to pay it back.

How do you recommend using debt wisely?

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Consumer Education Services, Inc. (CESI) is a non-profit service provider of comprehensive personal financial education and solutions for all life stages and for all of life’s milestones. Our goal is enhanced economic security for everyone we serve.

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