|
Do you know the difference between good and bad credit debt?
Most everyone seems to think that all debt is bad, but that
is not always the case. In fact, there are some instances
where good debt can actually help your financial situation.
The differences between good debt and bad credit debt will
affect every loan you get and can even make the difference
in getting a new job. Here are a few examples of what
determines good debt vs. bad credit debt.
Good Debt
Good debt includes anything that is too expensive to pay
cash for but is still something you need. Buying a home
is an example of taking on good debt because you need a place
to live.
Most mortgages have lower interest rates compared to high
interest debt like credit cards. As long as your monthly payment
is within your budget, a mortgage gives you an excellent credit
reference.
Financing a car is another example of good debt especially
if you plan to drive it after your loan payments have stopped.
The key thing to remember is shop for the lowest interest rate
possible.
Sometimes taking out a home equity loan makes sense to pay
for a car because the interest rate is lower than an auto loan
and the interest is tax deductible.
Having good debt and making payments on time gives you a
good credit rating. That good rating allows you to borrow
more money at better interest rates and can possibly help
your financial position.
Bad Credit Debt
Bad credit debt is any form of debt with a high interest
rate for things you really don't need. An example would be
to charge an expensive vacation on a credit card that you
can't really afford.
The worst form of bad credit debt is credit card debt
because it carries the highest interest rates. It's easy
to over extend yourself with credit cards and it is by
far the way most people acquire bad credit debt.
The quickest way to recover from bad credit debt is
to pay credit card debt down or pay it off completely.
The best way to pay credit card debt down is start with
the highest interest rate card first. Then, pay on the debt
with the next highest rate until you have paid off all of
your credit card debt.
Bad credit debt can also happen if you are continually
late on paying back borrowed money or you don't pay it
back at all. Once your credit rating is affected in a
negative way, it will hurt you financially.
Bad credit debt can keep you from qualifying for loans,
credit cards and may even hurt your chance for new
employment. Even if you could qualify for a loan, it would
be at a higher interest rate than if you had good credit.
The smartest thing you can do is to pay your credit card debt
off as quickly as possible to avoid paying the high interest.
While good debt will help you financially, bad credit debt
will have the opposite affect.
In today's world it's next to impossible to live debt-free
so it's important to know the difference between good and
bad credit debt.
Copyright © 2005 - Credit-Repair-Facts.com - All Rights Reserved.
About The Author
Gary Gresham
This article is supplied by http://www.credit-repair-facts.com
where you will find credit information, debt elimination
programs and informative articles that give you the knowledge
to correct your own credit and credit report. For more credit
related articles like these go to:
http://www.credit-repair-facts.com/articles_1.html
|
