When should you borrow and when should you drain?

Debt is an inherently scary thing, or at least that’s what it’s become in a modern society. Indeed, there is just cause to be wary of long-standing debts that hound you for years on end. But smaller debts that can be settled in a much briefer period are much less intimidating, and in certain cases, taking on a debt may actually be preferable to draining out your savings.

Obviously, if you have the income to pay for things upfront, you always should. No sense incurring debt unless it’s necessary, after all. But if you need to spend money on something that isn’t immediately covered by your income, or worse, you’re currently unemployed, you may not have any choice but to decide between dipping into your savings or taking out a loan. The entire point of savings is to provide you a financial cushion in the event of an emergency; making a habit of bleeding those savings out for every little thing kind of defeats the purpose. Instead of doing that, it may be better to take on a temporary burden that you can deal with without utilizing your savings.

Of course, even if taking on a debt is the more attractive option, it won’t do you any good if it ends up swelling past the size of your total net worth. This is case-by-case thing, but in most cases, the best course of action is to get a loan with a low interest rate and an established payment plan. If you’re in some kind of financial trouble, you’ll need something that won’t turn rancid if you leave it stewing for a while as you build up your funds.