Some Food for Thought!

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This is a guest post about debt, and some ways to stay out of or get out of. I hope you like it. It is from Michael Robbins  and he has been assisting consumers with their debt consolidation needs for over 10 years.

For More info you can check out his website.

What Kind of Debt Do You Have?

Good Debt Vs. Bad Debt

In a perfect world you would have no debt at all. But, using credit and taking out loans have been a necessity for most people for hundreds of years. It’s also important to understand that debt isn’t necessarily a bad thing. Sometimes debt can be a good thing that helps you create a positive credit history.

Identifying what type of debt you have will help you plan and prioritize as you work towards being debt-free. And, if you have to develop new debt, do it the right way.

Good Debt

Any debt that could be considered a successful investment is the smart kind of debt to develop. The important thing here is the mindset behind the purchase. You are promising your income to a bank as a wise decision regarding your future, not just because you want something you can’t obtain with your own resources.

Taking out a loan to buy a house, with at least 10% for a down payment, is a great example, as it will increase your net worth as it builds equity. Student loans help you get a degree that leads to an increase your income, so that debt could be considered good as well. Buying a vehicle on credit should only be done with 20% down, a low interest rate, and should be paid off in a minimum of three years.

Bad Debt

Unlike good debt, bad debt is used to make discretionary purchases that aren’t made with investing in mind. Credit used to cover living expenses of any kind is bad debt. This kind of spending (like food, clothes, entertainment, etc.) is encouraged by credit cards. If you don’t pay the balance in full every month for these items, then you are developing bad debt.

Never vacation on credit unless you have the cash to cover it in the same month. If you don’t have the money to go on vacation, simply don’t go. Save up and then vacation the right way.

Keep in mind that even good debt becomes bad debt if the payments exceed 40% of your monthly income. At that point it not only affects your financial future, but it also hurts your credit score.

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