Home > Managing Debt > How to Master Your Long-Term Debt

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Being in debt can feel like you have a cloud hanging over your head. But there are different kinds of debt. Some debts exist for a relatively short period of time (say less than a year) while other debts can span decades.

The most common forms of long-term debt are home mortgages, student loans and car loans. Long-term debt can be can help you improve your credit and build wealth if borrowed and paid back responsibly.

Do You Need It?

Before you take on a debt, a great strategy is to ask if you really need the item. For example, if you are looking to buy a car, determine whether you need to take out a loan or whether you can pay in cash. Research alternatives to buying a car. Look into used cars and consider how successful you might be at negotiating your way to a lower price and smaller loan.

Before you apply for a loan, it’s smart to check your credit scores to see what kind of interest rate you can expect to qualify for. You can get two of your credit scores for free using the Credit Report Card, a free tool that updates your scores monthly and explains the biggest factors impacting your credit.

Can You Afford It?

Once you’ve decided you need the purchase, you need to determine if you can afford to take on the debt. For example, if you are buying a home, determine whether or not the monthly mortgage payment will fit into your budget. This is where you plug in the numbers and even think about unpleasant scenarios where you may lose your job. You can use a loan calculator (like this one for auto loans) to figure out if you can afford the debt.

Can You Live With the Debt?

After you’ve determined you need to make the purchase and you can afford to take on the debt, you may think you are done. But it’s always a good idea to think about whether or not you can live with having the long term debt. For example, taking out a student loan may allow you to get the degree you need to start your career. Will you be comfortable starting in that career with the debt? Perhaps you don’t want the added pressure of an additional payment when it comes to finding a job. Or maybe you view it as an investment that will pay off over the course of your whole career. Either way, imagine yourself making decisions for the life of the debt knowing you have to pay it back and determine if it makes sense for you.

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