Introduction: How Your Financial Life Can Be Enriched with Borrowed Money

Quick Take:

Without debt, many of us could never have paid for college, bought our first cars and purchased our first homes. Yet it's all too easy to go overboard and end up imperiling our financial health.

The critical question: How do we ensure borrowed money enhances our lives-and doesn't leave us drowning in debt? Borrowing is, in essence, a way of acquiring stuff we can't currently afford.

Getting debt smart. To avoid that fate, we may want to pay attention to common guidelines on how much to borrow and what sort of debt to avoid. We should also: focus on what it takes to maintain a good credit score and give some thought to how much all that debt is costing us.

Given that our desires regularly run far ahead of our incomes, it isn't surprising that folks often wind up with too much debt.

As you ponder all of this, keep in mind a basic behavioral mistake. We imagine that our lives will be infinitely better if only we buy the bigger house, or the fancier car, or the new computer.

Sure enough, after we make such purchases, we are indeed thrilled. But within a few short months, the new car that had so delighted us is just another way of getting around town. We are hardly happier than we were with our old car-and yet we still have years of car payments ahead of us.

The lesson: Before making that next big purchase, maybe it's worth trying a cooling-off period of a week or two. That way, we will give a little more thought to the cost involved-and the debt payments we'll have to make.

Source: Jonathan Clements, Director of Financial Guidance, Citi Personal Wealth Management.

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Although information in this document has been obtained from sources believed to be reliable, Citigroup and its affiliates do not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from its use.