When we talk about most"four letter words", we are referring to words that we think of a bad. Debt is a four letter word.when you have debt,it usually means you are spending more money than you make. It means you're living larger than you can afford.
We have the good and the bad debt.
GOOD DEBT
Some debt is a good debt.If you buy a house and take out a mortgage that you can afford to repay,that is good debt. Why? A home is an asset. Since you are building your assets,a mortgage is considered good debt. Taking our a student loan you can afford to pay repay is also considered good debt. That's because by increasing your knowledge and skill, you will likely get a higher paying job.
BAD DEBT
Most Consumer debt is bad debt. If you shop using credit cards and don't pay off the balance in full every month, that's bad debt.
Many stores offer a "buy now Pay later plans" on items. They may sound like a good deal,but if you can't pay off the bill on time,the cost can be huge.When you don't pay off the balance in full and on time,the interest rate comes into effect . You might be paying as much as 36% interest.And you will pay that interest back to the date you took home. Buy now pay later plans aren't the only credit traps. Rent to own plans charge very high interest and fees. So you end up paying three or four times as much as you would if you saved up and then bought.
The worst form of credit is the pay advance loan.When fees and service charge are added in on top of the stated interest rate,these "loans" can cost from 700% to 1000%.
Very often it is people with the lowest income who are taken advantage of by these plans and loans. Sure, it's nice to have what you want right away. But using any of these types of loans can be very,very expensive.And it can throw your budget out of whack. In the end,you pay far more than you should,and feel trapped by those payments.Better to avoid them altogether
FALLING INTO DEBT
Very often people go into debt without realizing that they've decided to go into debt. It begins slowly.
Getting into debt takes no effort at all. A little shopping here. A meal out there. Some clothes for the kids,a new barbeque,and a wedding present.
You dont notice all that at first but the debt picks up speed.
FIGURE OUT YOUR DEBT LOAD
While no debt is the best place to be,if you're spending more than 15% of your monthly income for debt repayment then you are headed for big trouble,headed for a fall into bankruptcy.
HOW TO ESCAPE FROM BAD DEBT
•Change what you are doing
•Admit you have a problem with debt
•Start writing down every penny you spend
•Switch from credit to cash
•Commit to paying off your debt
•Get another job or a better one if you don't have the money to make a dent in your debt.
Staying out of consumer debt means not spending more money than you make. Life is expensive enough. Why would you add interest to the mix?
The best way to avoid credit is to plan how you will spend your money and make sure you have a little extra to save .That means staying true to your budget sntd finding the money and the commitment to save.
Thanks for reading.
