Business I, W9/L45 – Don’t Borrow Something That Depreciates

Writing assignment: 250 words. “Why shouldn’t I borrow to buy something that depreciates?”

    Borrowing money means you eventually have to pay that money back. In order to do that, you need to make back the money you borrowed so you can pay it to your creditors. If you use borrowed money to buy a consumer item, or something that depreciates in value over time, you may not be able to pay your debts on time, or not at all. However, if you borrow to buy something that increases in value over time, it will pay your debts off for you.

    Say you borrowed money to buy a new pair of expensive shoes. If you sell them right away, you still have to sell them at a lower price than what you bought them for, because otherwise a buyer would just go to the store and buy it there. If you wear them for a couple years, their value drops even further. No matter what you do with the shoes, their value still goes down. You still have to figure out how to pay off your creditors.

    Say you borrow money to buy a house. Over time, and especially if you keep it modernized, a house increases in value. One way to make money off the house is if you live in it and then sell it for a profit to pay off your debts. You could also buy a cheap, run-down house, fix it up, sell it, and pay off your debts. Or, you could rent the house out so that each rent payment goes to your creditors. This way you pay off your debts and you get to keep cashing in rent payments for as long as you like. The house’s value increases over time.

    Things that increase in value over time pay themselves off. Things that depreciate do not.


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