Posted by Tangela Davis on February 17, 2009 at 12:30am
Hi Ladies,This is "Part 2" of our series of Debt Management for the Professional Woman. This series will discuss what is "Good" Debt. Take notes and have fun learning!"Good" Debt-Student loans-Home loans/Mortgage-Business loanLoans to Pay for EducationIs a student loan really a bad thing? Not necessarily.If it's necessary to borrow a student loan, consider the process of value because it's investing in an education. U.S. Government Info through About.com identifies a substantial increase in lifetime income for student with an advanced degree over a high school education.A high school degree brings an average lifetime income of $1.2 million, while a bachelor's degree brings $2.1 million, a graduate degree $2.1 million, and a professional degree $2.5 million (Source: U.S. Census Bureau. So really, you are building equity in yourself. Not to mention, your student loan payments can now be deducted up to $2,500 on the federal tax return.A Home LoanA home mortgage loan can be a good debt for independent students who own their own home or the parents of dependent students (owning their own home) who consider borrowing through the federal PLUS loan.Mortgage loans can be considered good debt because the interest for money borrowed in a mortgage is tax deductible. Itemizing home mortgage interest rates is one of the few remaining itemization options on the federal tax return, and personal residences are almost always the lowest interest rates of all. Currently, 15 year mortgage rates average 5.75%, while 30 years mortgage interest rates average 6.00%.Business LoansAs with a home mortgage, business loans are another source of borrowing that allow tax deductions. In addition, a home mortgage or business loan is an investment that creates value; therefore, it is considered a good debt as long as it's not rolled into an existing long-term loan.Try to keep a second mortgage or business loan at a shorter repayment period than the initial mortgage or startup loan. If not, at least try to pay more than the minimum monthly payment to pay the balance off early since any extra payment to a mortgage loan goes directly to the principle.The rule of thumb to remember with mortgage or business loans: take only if using funds to improve or increase equity.However, even though home mortgages may be a viable option, it is still an advantage to borrow through the Subsidized Loan program before taking out a mortgage or second mortgage because Subsidized loans defer both payment and interest while the student is in school.Repayment terms are usually shorter (10 years) than a mortgage or business loan, so even though the student loan has a higher interest rate, the difference between paying a 10 year student loan versus interest on a 15 year mortgage loan may end up being relatively the same amount.Remember, both mortgage interest and student loan interest can be deducted on the federal tax return, but there are qualifications to both. It's important to consult a tax preparer to see from which, or both, types of loan you may benefit.Article by Terri Hare – elearners.comUntil our next series Part 3 - "Middle of the Road Debt", stay wise. Have a wonderful and productive week!For your debt elimination and management needs with little to no change to your current lifestyle and standard of living, contact:Tangela Davis, MBAFinancial Educator/Consultant704-299-1195tdavis@trinitystrategicconsulting.com
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