While I’m not an advocate of going into debt, sometimes borrowing money can be the best way to improve your financial situation. So far in my 31 years, I have borrowed $147,000 not including interest. The best money I have ever borrowed is a single loan of $8,000. That’s only 5% of the amount I have ever borrowed.
Why It’s the Best Money Borrowed
For me, borrowing $8,000 to spend a semester abroad in Spain during college was the best money I ever spent. While I partially did it to have an educational excuse to visit Europe and see historic sites, it was an opportunity to live the language (Spanish) that reinforced my ability to where I still have a conversation plus read and write ten years later. Plus, I am a Spanish teacher during the school year.
While I borrowed a total of $50,000 to earn my undergraduate degree, this semester abroad is one of the few courses I’m actually using from my college education.
For new readers to the blog, I originally didn’t plan on becoming a teacher when I attended college. But, one of my goals was to use Spanish in whatever profession I wound up in after graduation.
My life wouldn’t have stopped if I couldn’t have gone abroad. After all, you hear of many people that only go abroad to party and much more study abroad alumni that never use their foreign language skills after graduating college.
All The Other Money I Borrowed
Let me break down all the other money I have borrowed so far in my adult life:
- $50,000 in student loans (includes the $8,000 study abroad loan)
- $27,000 for my dream car
- $70,000 home mortgage (plus $60,000 in savings to cover the price difference)
My wife and I have never missed a credit card payment or bill payment, so we have (thankfully) never been in consumer debt.
Honestly, I will say it is kind of hard to say that a single loan “changed my life.” It didn’t. But, it did give me tools that I could use and fall back on when I ready to find new employment. Had, I not studied abroad and I wanted to start speaking Spanish again, I would have been like most people and would still be lucky to count to ten and say hello (Hola) or goodbye (Adios).
Anybody that has taken a high school or college foreign language without “living the language” is probably nodding their head in agreement right now.
It’s All Relative
I’m not going to say any debt is “good debt.” Debt sucks and you should do everything possible to avoid it. Period.
If you were to ask me in five, ten, or twenty years if the $8,000 loan to study abroad was worth it, I might say no.
Although I will always recommend that everybody travel abroad at least once in their life for school, missions, work, or vacation. International Studies Abroad is the program I used and recommend.
Circumstances change as we age. I might eventually say that the home mortgage loan is the best money I ever borrowed because my wife and I no longer have to pay rent or our daughters got to marry the “guy next door” that they wouldn’t have met if we lived in Topeka instead.
I’ve never been to Topeka but I think it’s a fun word to say and write.
One thing for sure is that I will never say borrowing money to buy my car was “good debt.” I didn’t need a fancy sports car to get around even if it was fun. Although, my wife did tell me she wouldn’t have dated me if I was driving a rust bucket when I could have afforded something better. A better car could have been something that only cost $10,000 and I could have purchased with cash.
This is exactly what my wife and I did for a replacement family vehicle when our old one got reassigned to local trips only.
My Advice About Debt
What do I think about debt besides the fact you should never borrow money unless it’s absolutely necessary?
Save for Large Expenses
If you foresee a large expense in your future like having to get a new air conditioner, tv, washing machine, or home repairs start putting aside money today. Try not to spend your emergency fund, unless it is a completely unexpected expense.
Another way to save is to wait until your vehicle or item completely breaks down before you borrow. Delaying purchases “buys” you more time to save up enough cash. You might also decide you no longer need to make the purchase at all.
Make a Down Payment
When you buy a house, you need a 20% down payment to avoid the additional fees that accompany Private Mortgage Insurance. If your credit is good enough, lender oftentimes won’t require a down payment when you finance a car or apply for a personal loan.
It’s easy to get in the mindset of only making the minimum monthly payment for the life of the loan. By making a lump-sum down payment, your monthly payment will be a lot lower than if you put $0 down. This not only gives you financial flexibility if you have a high cost of living or run into short-term financial turbulence. But, smaller monthly payments also mean less total interest.
It’s one reason my wife and I saved for several years before we built our house. We qualified for a construction loan to finance the entire project, but, we didn’t want to pay interest on a $130,000 loan when we could get a $70,000 loan instead. The down payment dropped our monthly payment from $898 to $493 (excluding escrow) for a 15-year mortgage. Now we are making double payments every month to have our entire loan repaid in five years and will save $15,000 in interest payments.
Pay It Off Early
Whenever possible, make extra payments that are applied to the borrowed principal. Even if it’s only an additional $20 each month, you will save money with less accrued interest.
Before making extra debt payments, do make sure your emergency fund is fully funded and you are also saving for the future for retirement. If your only debt is a home mortgage, you might also be tempted to invest instead of making extra mortgage payments because the average stock investment return is currently better than the average mortgage interest rate. You might decide to hedge your bets and do a little of both.
What’s The Best Money You Every Borrowed?
Now I’m turning the floor over to you.
What’s the best money you ever borrowed? Or, what is the worst reason you borrowed money?
I would love to hear your story.