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 About Debt
Good Debt vs. Bad Debt
Debt Management
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Do you know what debt costs? Do you know how debt and debt payment impacts
your credit history? If you're credit history is poor, changes are very
good that you're paying for it - every time you try to pay off debt and
every time you buy anything.
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What every consumer should know about debt
1) Credit card debt tops the list of "bad" debt
Americans love their credit cards. It is estimated that the average credit
card debt held by any American who has at least one credit card is between
$7000 - $10000. As well, these card holders pay interest on their credit
card debt at an average rate of between 15-18%. Most financial experts
agree that credit card debt is among the worst types of debt to have.
2) Many financial experts make a distinction between "good" debt and
"bad" debt.
As mentioned above, credit card debt certainly falls into the category of
"bad" debt. Any debt that is assumed for reasons of 'quick' consumption is
usually considered bad. This would include meals at restaurants, vacations
and most household items. These things contribute in no positive way to
building assets or investments. Many people consider (affordable)
mortgages on homes and education debt to fall into the category of "good"
debt. Many financial advisors include automobiles in this category as
well. However, automobiles depreciate quickly, and this is why not all
financial advisors agree on this point.
3) Always pay off high interest debts as fast as possible.
Every consumer should strive to pay off high interest debts first, then
work on every other debt on the list according to what interest rates are
being charged. The key here is to pay less interest overall, leaving more
money to pay off principle.
4) Understand your spending.
Countless studies and surveys have been carried out that seek to
understand how consumers spend their money. One fact seems to inevitably
appear. Americans do not know how they spend their money. This is not
surprising, as we've all either said to ourselves or heard it said that "I
just don't know where it all goes". There is really no reason for this,
and many believe this is the strongest contributing factor to why so few
people save and invest money and find it so difficult to pay off debt.
5) Don't just pay "the minimum".
Only paying the "minimum payment due" on credit cards, for example, barely
covers the interest owed, never mind the principle. The end result is debt
that, in the long term, costs you hundreds and thousands more than the
debt itself.
6) Be careful borrowing.
Always think very carefully about borrowing against your 401(k) or your
home. The potential results can be disastrous, leaving you short of money
for retirement and even losing your home.
7) Always keep a cash cushion.
Many experts agree that individuals should have 3-6 months worth of
monthly income saved and put aside at all times. This helps to prevent job
loss or financial emergencies from devastating your life.
8) Understand the realities of mortgage interest.
Mortgages often tend to have lower interest rates than a number of other
kinds of debt. Know that the interest paid on the first $1 million of a
mortgage loan is deductible. As well, understand what rate your mortgage
is at. Consider refinancing if it's too high.
9) If you cannot effectively manage debt, seek help immediately.
This is a very important point made by financial advisors. Unfortunately,
people are often embarrassed about high debt levels and an inability to
pay debt off. This is a huge mistake, as developing a debt management
strategy early can save you hundreds and even thousands of dollars. It can also
prevent a bad credit history from impacting your ability to borrow in the
future.
Do you need help to get your debt under control?
Fill out our no obligation debt consolidation services request form online
today!
Learn more about
debt management and budgeting. Practical Money Skills for Consumers
provides
debt management calculators and other useful tools.
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