While debt has traditionally had a negative connotation, many people now see it as a valuable tool to help them responsibly manage their finances. In fact, a new 2019 LightStream survey conducted by Wakefield Research found that 79% of Americans with good credit (Credit Score: 660+) believe taking on debt purposefully can help them accomplish their goals.
Debt is a financial reality for many Americans. More than one in four good-credit Americans (28%) are currently carrying debt that is not associated with auto, mortgage, business or student loans, averaging $19,833. Americans with credit scores of 800+ are carrying the most debt, averaging $22,779. However, not all debt is the result of frivolous spending, particularly when the decision to use it is made in a conscious, values-driven way with consideration for one’s overall financial health and capacity. LightStream calls this “purposeful debt.”
LightStream’s survey found that most people with good credit would not take on purposeful debt for just any reason. For many, debt is accrued for their wellbeing or the wellbeing of their loved ones. Common reasons to take on debt include costs such as orthodontics, elective medical procedures and fertility treatments (39%); care for aging family members by paying for a nursing home or in-home assistance (31%); and life moments such as a wedding (13%) or a divorce (7%).
“While we would never encourage someone to spend beyond their means, incurring purposeful debt can be a valuable financial tool when used to achieve specific goals,” said Todd Nelson, LightStream senior vice president of strategic partnerships. “But how you manage your debt is just as important as why you incur it. Many of our customers that used credit cards to pay for large life expenses are eager to eliminate their debt as quickly and efficiently as possible.”
LightStream offers the following tips to take on and manage purposeful debt:
- Budget, budget, budget: Inventory your debts so you know who you owe, and the interest costs you are paying. Calculate to make sure your income can support the added expense. Make sure that as you plan, you include all of the assets you have built through savings, home equity, and other earnings. Avoid spending all your savings as this could cause financial hardship in a future emergency. Investopedia reports that “most financial experts end up suggesting you need a cash stash equal to six months of expenses.” With a clear financial picture, you can determine how much debt can be eliminated by tapping existing resources and how much additional financial assistance may be necessary to reduce carrying costs and meet your goals.
- Lay the groundwork: 89% of those surveyed with good credit say they would prepare before taking on purposeful debt. Almost one in two would check their credit score (47%). Many also say they would consult a financial professional (27%), seek advice from a family member (23%), and/or research company rates and reviews online (25%).
- Consolidate your debt: “Managing debt can seem daunting, but a cost-reducing solution like a debt consolidation loan is a great option,” continued Nelson. “It allows borrowers to immediately pay off high-interest debt at a lower, fixed interest rate.”
People often overlook debt consolidation financing due to misconceptions, such as thinking it is expensive (23%) or that it can take months to get approval (19%). In fact, if you have good credit obtaining a debt consolidation loan can be a fast, simple process that saves money, with interest rates that can be much lower than those charged on credit cards or other financed purchases. It also helps reduce the time frame for repayment and streamlines financial management by reducing the number of monthly payments.
For consumers who want to manage their purposeful debt with a debt consolidation loan, the process can be simple and quick. “Within 24 hours, I received a response,” LightStream customer Melissa Z. said. “It took me less than five minutes to sign up, and I saved an enormous amount of money on all my credit card interest rates.”