What Everyone Should Know About Debt
When it comes to debt, so many people are just unaware of how it really works. It seems simple — you purchase an item using credit and pay it back over time with interest added. Yet, it can become very complicated rather quickly.
So many people have gotten into debt and used bankruptcy as a quick way out that Congress has actually passed a law to make it harder to be granted a bankruptcy. This means that it is harder for you to get out of debt.
According to the Consumer Debt Council, 98% of all debt is avoidable. That means that the debt incurred wasn’t necessary. Debt can add up so quickly. Before you know it, you are maxed out and have no where else to turn.
The good news is that there is a way out. It isn’t quick and it isn’t easy. It takes careful planning, hard work and patience to find your way out of debt.
Most financial advisors out there like to separate debt into two categories: good debt vs. bad debt. While I agree that a mortgage is a good debt, you must keep in mind that ANY debt that you can’t afford is bad debt. A reasonable mortgage within your budget capabilities is a good investment. And often, vehicle loans are necessary. You simply have to be wise, choose a vehicle that you can afford and pay it off as quickly as possible.
Debt that you cannot afford, no matter your budget, includes credit card debt, debt on luxury items, pay day loans and any other debt that takes more than the item gives. If the item you are taking credit out for will depreciate in value while you pay interest on it, you are taking on bad debt.
What do you do with your bad debt? You pay it off as quickly as possible. The faster you pay it off, the less it will cost you.
Start by cutting up your store cards, the interest rate is too high on them anyway. Put your credit cards in a safe deposit box at the bank. This will ensure that you only use them in the case of a real emergency. List your debts from highest interest rate to lowest interest rate. Start paying them off, starting at the top of the list and working your way down.
Find money to start paying off your debts even faster. If you are only making the minimum payment on your credit cards, you will pay almost four times as much for the original charge. You will be paying these cards off for decades if you stick with the minimum payment. Try to at least double your payment. Start with the first card, putting as much extra as you can towards it. Then as you pay off your card, move down the list to the next one.
You may have to sell something, take on a second job or cut back on your spending. Chances are that you are in this situation because you spend too much anyway. You have to change the way you think about your money. Consider how much you would have in a retirement fund if your debt was actually savings. Run an investment calculator to see what the true value of your dollar is if you were to invest it in a moderate growth investment for the next 20 to 30 years. Then consider that each dollar you spend today is costing you hundreds, even thousands, of dollars tomorrow.
Debt is so easy to get into. Watch television and you are told to buy now and pay later. However, 95% of consumers feel buyer’s remorse after buying nonessential items. This says that deep down we know that this isn’t a good path to be on. But what can you do about it?
Take a hard look at your debt situation. See what it is costing you today and in the future. Then take action. The sooner you are out of debt, the sooner you can start using your money for the things you really want in life. No more finance charges paid to the bank. Let the bank pay you interest instead.
Martin Lukac represents RateTake Mortgage marketplace. RateTake matches consumers with multiple lenders offering low Refinance Rates from our network of accredited lenders.
Article Author :Martin_Lukac
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