From the desk of the Debt Freeks, May 1, 2016.
Subject: Student Loan Mistakes
By now you probably know that the best way to get a college education is to do it debt free.
But if you are in the process of implementing your debt solution and still have loan disbursements coming up for this term, here are a few of the worst uses of student loan funds (or any borrowed money for that matter) that you should avoid at all costs:
Never Spend Your Loan Money On A Vehicle
Using your loans to buy a car or truck is a bad idea. You will be inclined to overspend on a vehicle because you “have the money,” right? Not only are you inviting overspending, but risking being upside down on the vehicle as well. You can easily get into a situation where the amount you owe with interest is higher than the amount the car is worth because the interest continues to climb while the car’s value continues to plummet. Putting your money into things that decrease in value is rarely a smart move, but it is doubly dumb because you owe this money you’re spending to someone else already. The only thing dumber than this is paying on a car loan with student loan money. Why don’t you then pay your student loan bill with a credit card. Then you’re paying debt with more debt and owing money on the money with which you’re paying the money you owe – insanity! Don’t owe money on money you’ve already spent, don’t spend borrowed money on a car or truck.
Never Spend Your Loan Money On Rent
Using your loans to rent a place is a bad idea. If you can’t afford the rent, get another roommate or move someplace cheaper. Just like the car conundrum, you’re not putting money into something that goes up in value. You need somewhere to live, but you’re not really trading your money for anything that truly produces income that would allow you to offset the cost of borrowing the money to do it. Your occupancy of a place is not adding value to it, despite how awesome you may be. And knowing that the time you spent in a place in the past is literally costing you money as it generates interest against you is definitely not awesome. Don’t owe money on your memories, don’t spend borrowed money on rent.
Never Spend Your Loan Money on Consumer Goods
Sure, things like computers, cell phones, office supplies, clothes, and other consumer goods can be considered to be educationally related, but using borrowed money to pay for these things is a bad idea. Why pay for something that is obsolete as soon as you open its box and then let that thing accrue interest for the next few years. If you feel you need to borrow money to buy something, chances are you don’t need it as badly as you think you do. If something’s worth buying, it’s worth owning, not owing someone for. Yes, buy quality items that you can use for many years, but be thrifty, wait for a sale, get it used, be a smart consumer. The best time to buy nice things is when you have enough cash that they seem inexpensive to you. Don’t owe money on things you’ll throw away or donate, don’t spend borrowed money on consumer goods.
Never Ever Ever Spend Your Loan Money on Food
This is quite possibly the stupidest thing I can think of and the real reason I wrote this article. Using borrowed money to buy food is a bad idea. Food nourishes your body, but it does not go up in value, it literally goes down the toilet. Your loan money incurs interest, remember. If you spend $10 on a sandwich, that’s fine, but then in five years you have to pay $5 in interest, is that sandwich really worth $15? Food is your weapon in the fight for health and wellness, so you should eat well and be smart about it. The smartest thing to do with food is not to owe money on it. Don’t owe money on things that disappear, don’t spend borrowed money on food.
So I’ve talked a lot about how foolish it is to put your money into things that go down in value. What are some things that go up in value, you might be wondering. Things that increase in value over time are usually things that make money, or make it easier to generate income, things like capital goods, (certain) investments, physical or virtual real estate, and skills and knowledge that allow a person to add value to the marketplace. That’s what this is really about, being a producer and putting your money in places where it can be productive, versus being a consumer, and putting your money straight down the toilet with your interest-generating borrowed sandwich.
The very best thing you can do with your student loan money is pay it straight back to the bank immediately. The second best thing you can do with it is invest in yourself; to learn a skill that will generate you lots of money so you can pay off your debts before graduation. Remember it’s not the diploma that will make the money, it’s you. Anything else is a completely wasteful fantasy and not worth your time or your freedom.
Until Next Time,
Do Brave Deeds and Endure,
– Ben at Debt Freeks