Debt - The Good, The Bad And The Ugly
Debt is often referred to as good and bad debt
. Quite frankly, I don't like any of it, but some of it will help to a certain extent, others types will not impact you negatively and some is consider poison. When you are paying off debt, this will help determine which debts you should tackle first and which can be left until the end. Your debts can be looked at and considered good, neutral and toxic.
The types of debt that are considered good are mortgage debt, student loan debt and business debt. Even an overwhelming amount of these kinds of debt are not good, but on the whole these obligations usually have lower interest rates and the interest is tax deductible. But besides that, these kinds of loans can help improve your net worth through appreciation and earning potential. If this is the only kind of debt you have, you are doing good.
Neutral loans are not something that necessarily hurts you in moderation, but there is nothing to be gained by them either. These include car loans, personal loans with a fixed interest rate, debt consolidation loans and 401K loans. If you have to borrow money, these are a better alternative than many consumer debt options.
Toxic debt is financial obligations that have been charged on credit cards or financed with payday loans. These alternatives have high interest rates and in many cases they are variable. When it comes to debt repayment this is what should be addressed first. While you do need credit cards for many things, that does not mean you need to carry balances on them. Credit card debt can be devastating in large quantities and should be eliminated as quickly as possible.
There are a few different ways that you can address consumer debt. What will work best for you will depend on your balances and your discipline. Debt can steal your dreams and your future. The sooner you can eliminate it the sooner you can have the life that you have always dreamed of.
by: Marjorie Salada
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