Distinguish Good Debt from Bad Debt & Learn How to Handle Each
When you borrow money, you enter the world of debt. It has rules, players, strategies, and a scoring system. One of the best things you can do for yourself is learn to differential between good debt and bad debt so that you can play the debt game well.
Rules of the Debt Game
Here are the rules of debt game that you must follow once you enter to the world of debt:
- Rule #1: What you borrow, you pay back with interest.
- Rule #2: If you don’t pay, you suffer.
There are consequences when you don’t repay a loan. You will receive urgent message and harassing phone call from creditors or a surprise visit from skilled repossesses come to take back what your bought but didn’t pay for.
- Rule #3: If you pay your loan on time with interest and you are rewarded with better option and lower interest rate.
- Rule #4: Your performance in the games of debt earns you a score. The higher the score, the better you are in the position of getting the best credit rate in the market.
Basic Strategy: Good Debt versus Bad Debt
To play well in the debt game, you need to understand that there is good debt and bad debt. What are the different between these two debts?
Good debt helps you gain financially wealth. For example, getting a mortgage loan will mean you have got a debt to repay; but overtime, you home should appreciate in value and, therefore, your debt will help you money. Another example of good debt is business loan; you are getting loan to run your business and generate profits.
Whereas bad debt comes in when discussing the purchase of disposable items or durable goods using high interest credit cards and not paying the balance in full. Some people have a difficult time living within their budget when they charge items rather than paying cash. Paying less than the total balance results in additional interest charges making the real cost of the item higher.
In simplest of terms that differential good debt and bad debt is good debt produces cash flow, and bad debt doesn't. Beware that a good debt may turn to become a bad debt if you do not repay them.
When you need to get a loan or credit to pay for something, make sure you have read, understood, and agreed with the terms and conditions. Don’t take anyone’s word for it until you do. It’s good to analyze a debt to test whether it is a good debt; here is a simple filter to put it through. Will the debt…
- Give you a legally and morally sound opportunity to get out of the debt or obligation?
- Be secured by something at least as valuable as the loan itself so that the collateral can be sold to pay off the loan?
- Have a competitive interest rate? If the loan you are considering is outside the competitive range, it may signal a problem. If you are a person with a history of credit problems or a low credit score, expect to pay a higher interest rate to compensate lenders for taking what they consider to be a higher risk in lending to you.
Get Social, Bookmark Us!
|
|
|
Online Resources
|
Debt Free In Three Years  “No matter how deep in debt you are and no matter how much money you’re earning, you can certainly be debt free in 3-5 years! My system has a whopping 97% success rate! Why struggle financially, forced to pay mammoth bills for the next 35 years of your life – when you can be free from paying them in only 3-5 years! Get More Information |
|
|
