Is it really ok to carry any amount of debt when interest rates are really low like they are right now? Well… maybe it is, but that is only true when borrowing on a short-term basis.
In most instances, interest rates tend to be high for long-term loans. And if you pile debt upon debt, taking out new loans to pay off old ones, that would usually increase the chances that you may miss out locking in a low long-term rate when it actually becomes available.
The key thing to remember is not to finance long-term debts with short-term loans. It's not a good idea. For example, using a credit card to pay for a home improvement that will take a few years to pay for. Apply for a home-equity loan instead. The interest is usually just around 8% for home loans.
What if there is an emergency? Well… let's first make sure we really know what an emergency is. A true emergency is a serious illness or maybe a weather-related damage to your home that you were not able to anticipate. Going for a vacation on the other hand is not an emergency.
The best principle to live by is to borrow only for your home and education (yours or your kids'). These are two things that generally outweigh the costs of borrowing. You may also apply for a loan if the purpose is to acquire basic transportation, not to have leather seats or high-end navigation systems.
Of course, we use credit cards to pay for everyday needs such as groceries and gas. However, we should always make it a point that balances on credit cards should be paid off within the grace period to avoid finance charges.
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