To steer clear of the traps that creditors have laid, however, you have to understand the new borrowing realities and how to put them to work for your advantage, not the lenders. The purchase you're financing should outlast the length of the loan taken to pay for it. A house will still be standing when the 30-year mortgage you took out has been paid off. Likewise, a car will still run after a four-year loan has been retired. The asset you finance by borrowing should provide a return that will offset the cost of interest.
Houses generally appreciate in value.
Education loans are investments, too, when they help increase earnings. Better to pay for them from current income or from short-term savings set aside for purchases of these durable goods. For car debt, spend no more than 10 percent of your income multiplied by the number of years you're financing, and try to keep that number within four. If, however, it's between 15 percent and 25 percent, you should embark on a systematic debt-repayment plan. The cheapest way to consolidate debt is to move your balances to a new credit card with a low teaser rate, preferably a rate that will last long enough for you to eliminate your bad debt before the interest rate is hiked.