Tuesday, November 15, 2011

How to Deal with Debt - The Good the Bad and the Ugly

Debt is something that we all must live with at some time in our lives. For big purchases, most of us will be required to get help to make it happen. Such things as real estate or even a new vehicle etc.are good examples.

Debt can be good, it can be bad or it can be extremely ugly. It all depends on how it is used. Let me explain the different uses for debt and whether they can help or hurt you in your future financial lives.

Let us start with the extremely ugly . High interest loans such as credit cards and loan sharks. Never borrow long term money from these two sources, it's a recipe for disaster. Credit cards are a convenience but can be a huge trap if not used properly. I will be writing about the proper use of credit cards in a future post.

You guessed it, next is the bad debt. Basically any debt that you take on just because you want something NOW and couldn't wait to save for it. In today's society we have been conditioned to believe that we need something right away or else our heads will fall off. Or more commonly because everybody else has one and their heads are still intact. Examples of this kind of debt are lines of credit, special zero percent loans, etc.
Remember when it comes to borrowing money Nothing is FREE No company that I know of is in business to lose money!

Now for the good stuff. Good Debt. Yes, there is such a thing. Borrowing to buy a home for instance is generally good debt. Besides, most of us could never save enough to pay cash for a home. A home, or more generally Real Estate, will tend to rise in value over a long period of time. Many in the US may not believe me on this one right now, but remember I said long term (generally 10,20, or more years). Unless the world falls apart, or your head falls off, I should be right on this one.

Another example of good debt is borrowing to invest in something that pays you an income or that will potentially rise in value over time. Also, with this type of debt, governments will generally allow you to deduct the cost of this debt from your income when calculating your income tax. Another advantage of borrowing money to invest.

Debt can be your friend or it can be your worst enemy. It all depends on how you use it. The secret is to take control of your debt use and don't be convinced by others, even banks, that their loan is the best for you. Remember banks and other businesses are in business for one reason. To Make money. I will be writing about banks more in future postings. Stay Tuned, or your head may fall off. (Where did this come from??)

As always, I welcome your comments and requests for future topics.


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