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Good debt or bad debt?
As long as credit is easy to receive, debt will continue to walk with us through life, taunting our every move and aggravating our very existence.
Some debt advisors state that the total amount of debt accrued per month in credit cards, loans, mail order catalogs etc., should not exceed any more than 36% of our gross monthly incomes. This is the maximum target level a mortgage lender will allow while assessing a potential borrower.
What is the best next step to take?
The secret to using debt to your advantage is to make sure that you buy assets which will increase in value. For example, a mortgage will allow you to live in a nice home with the hope of making a profit from it in the future. A student loan will allow you to study for a good job which will bring you many financial rewards.
Instead of using credit for profitable purchases like the above, most people use their cards to purchase everyday items which decrease in value the moment that they are bought, for example, food or clothes. If you do have to revert to your credit card for these goods, you should pay your total balance in full to avoid interest charges.
A credit card should never be used to finance a holiday as a holiday does not appreciate in value. Add to this a card with a high interest rate and you are dabbling with bad debt. An ideal debt to income ratio should not rise above 20% of an annual income when calculating personal loans, credit cards, utility bills etc. Figures that rise above this mark are likely to turn creditors away, even if payments are maintained.
Tagged Credit Card, debt, Debt Advice, Loans
If Only It Was That Easy
Debt. We live in a world where it is easy to fall in to debt problems. Some debts are unavoidable & I think that it is important to manage the debt you have so that it does not cost you more that it absolutely has to. Its also important to have a goal of being debt free & not borrowing unless it is 100% necessary.
Mortgage
Our mortgage is the biggest loan any of us will be personally asking the nice bank manager for. I think that 100% mortgages are a bad idea as they give you 0% equity in your property for the first several years. Also, if there is any down turn in the market you could find yourself in a negative equity situation. This means that if you sell your house, the amount realized from the sale would not cover the amount you owe. No one wants to have to pay for a house that they no longer live in. Many people pay a little extra off their mortgage every month. This is a great idea as it reduces both the amount of the original debt & the interest that you are charged. You are also reducing the term of your mortgage.
I think that it is important for people to take the time & look for the best mortgage deal that they can get. Its now easy enough to change your mortgage provider & can often make a considerable difference to your interest rate.
Credit Cards / Store Cards
Unless you can afford to fully repay the amount owed every month I think that cards are the easiest way to end up in debt. The interest rates are high & it is far too easy to charge items to the card either online or in shops, restaurants, bars etc.
If you find yourself with large card debts cancel your cards & transfer your balance to a new card. There are lots of 0% interest for the first x months offers. This will give you breathing space to reduce the debt without the interest charges.
Holiday / Car / Wedding Loans
The golden rule should be that if you cant afford to pay for it outright then you cant afford it.
Lenders are giving out loans far too easily. There is nothing wrong with saving for a few months in a high interest account & then buying your car or going on your holiday. Most people are surprised at how quickly it adds up & once you are in the habit of saving it become easier.
Tagged Credit Card, debt, Loan