There are so many great things about being a woman, and one of them is we are financial wizards. One area of our magic: how to use debt. Although there is a myth that women go wild with credit cards, according to 2020 research from Experian, women carry about the same credit card balances and scores as men. Men are more likely to carry substantially more personal loans, car loans and mortgages, while women have a higher student loan balance.

I want to highlight this research, because A LOT of shade is thrown at women for our spending habits. (If one more financial expert makes a comment about shoes and handbags, I’m going to poke my eyes out). I also believe debt is a really important part of an overall financial plan, not a moral failure. If we know how to use debt wisely, it can help women close the financial gap with men.

Here are some tips to channel your inner Hermione and make debt work for you.

Key Takeaways

  • Despite a myth that women go wild with credit cards, according to 2020 research from Experian, women carry about the same credit card balances and scores as men.
  • Student loans and mortgages are necessary evils, not necessarily bad if you use them right. 
  • Avoid car loans and personal loans whenever possible and keep them as modest as you can

The Good Debt Debate

There are many kinds of debt you can get into, and financial experts like to debate whether “good debt” is a thing. If you know how to use debt, I believe it’s a tool you can use to get ahead in life, tho a risky one. While it can allow you to make important financial moves, such as getting a mortgage or degree that helps you increase your earnings, it can also go very badly.

High-interest debt is very difficult to get out of and should be avoided like a home perm, even if that means swallowing your pride and asking to borrow money from family or friends first.

How to Use Debt The Right Way

If you have to go into debt, it should be on something that will give you a return on your investment someday, such as by increasing your future earning potential. However, it’s important to do everything you can to keep your debt as modest as possible. Here are a few examples of how to use debt for a better long-term outcome.

Student Loans –  A necessary evil

Women carry two thirds of American student loan debt for a number of reasons: our parents are less likely to save for our education. We are more likely to go to college, and we earn less when we’re done. This student loan crisis is real, it’s a national travesty that has been perpetrated mostly by colleges, and it disproportionately penalizes women of color. Its fucked, but we can make student loans work for us.

If you’re considering taking out a student loan, take out as little as possible. First, look for the least expensive program that will give you what you need and plan to live on what you’re likely to earn. Online programs tend to be the cheapest, although it’s important to make sure the school is properly accredited. While a liberal arts degree can be a great path, and many successful women have them, they absolutely require a financial plan to pay them off.

Side note: Millennial and GenX women were also less likely to be as informed of the financing options, so if you’re done with school, help out GenZ ladies and speak up about your experience.

Mortgage Loans *can* be good debt

If you don’t already have a stable income and an emergency fund, then getting a mortgage is not for you. However, if you buy what you can afford — even if it means choosing a smaller house, or a less fun neighborhood — a mortgage is the path to home ownership.

Mortgages also have a great savings feature built in: part of your payment goes towards the principal, aka your equity in the house, the part you own outright. The principal is basically structured savings. Like many women, one of my biggest financial regrets was not buying an apartment sooner. I was waiting for my life to begin. When you’re ready, shop for a good rate, and budget in taxes and savings.

Business Loans are only for pros

Business loans should only be taken out by well-established businesses. This is some expert level kung fu.  If you’re starting up a new company, don’t add to your risk by going into debt. Keep it small, build a track record and profitability, and then look at expansion. When you have a strong ability to pay back the loan, debt can provide your business with working capital, such as cash for inventory. 2020 also taught us that it can help in a crisis: Paycheck Protection loans helped many businesses fund payroll costs and healthcare benefits.

How to Use Debt The Wrong Way

Okay, ladies, these next types of loans are the kinds you should always avoid. You will not gain anything more valuable from them, you will only lose money.

Car Loans – always a bad idea

It’s not only men who are car-obsessed! Many women have expensive dream cars they would love to buy (including me), but taking out a loan is not the way to do it. A car becomes worth less every day, but you’re still paying off the same amount. So you’re likely paying more than it’s worth, plus interest.

Additionally, dealerships don’t have your best interest in mind. They profit heavily off the financing and extended service plan/warranty. Dealerships are also a terrible place to get service done – they often charge 2-3x what you pay at a private auto repair shop. Instead, use Yelp to find a nice mechanic who has your back (high five to Kevin Yuen who treats me like one of his daughters).

It’s much better to pick a car you can afford outright and pay in cash, even if it requires you to swallow your pride and car love. I feel you 100%. I cried bitterly when we got rid of my old jeep, and dream of a fun car (that I will buy used, for cash). For now, our family rolls in Rhonda the Honda, a used CRV that thrills me 0%, costs virtually nothing to own, has a high safety rating and will run forever. At least she’s red.

One caveat: I agree with The Budgetnista that you shouldn’t empty your savings to buy a car. A car loan is definitely better than No Emergency Savings. If that’s the tradeoff in front of you, keep your car loan as modest as possible to get to work reliably.

just avoid Lifestyle Loans

Lifestyle or personal loans are offered for a whole range of purposes, and all of them are a bad idea. Don’t finance your dream wedding or other extravagances – a greater acceptance of debt for luxury items may be why men carry higher personal debt loads.

As women, we are already at a big advantage when it comes to debt. We’re more cautious than men, and we use debt wisely. Remember Consider if a loan is really necessary, reconsider what you need vs want, have a plan for repayment and borrow the least amount possible. You got this. Check out these 3 tips on overcoming your debt with confidence. 

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