Multiple Debts - Which One To Pay First? PDF Print E-mail
Written by Andrew Tucker   
Wednesday, 17 March 2010 13:50
Most consumers believe debt is no good, and more often than not they are correct. However, there are certain times when debt can be used for good instead evil, and can actually help you realize financial freedom sooner. Here is a simple guide that explains the difference between "good" and "bad" debt.
by AndrewTucker


Most consumers believe debt is no good, and more often than not they are correct. However, there are certain times when debt can be used for good instead evil, and can actually help you realize financial freedom sooner. Here is a simple guide that explains the difference between "good" and "bad" debt.

Good Debt Defined

Certain debts can help you live a lifestyle otherwise impossible. Mortgages are a great example of good debt, if used properly: most of us could never afford to pay for a house out of pocket. However, with a down payment and a reasonable mortgage that fits our budget, that debt provides us with home ownership- a dream for most families.

Cars loans, if used responsibly, are another form of good debt. Many employees require transportation to get to work, and the small cost of a car loan is offset by the income earned from their job.

Investment properties can be very profitable if you can secure a mortgage with low monthly payments. By using a mortgage, you can have renters pay for your property, while enjoying several tax advantages and appreciation over years to come.

Bad Debt -What To Avoid.

Debt can be a killer when it comes in the form of high interest credit cards, which siphon money from your budget at rates as high as 30%! Whenever you have debt on items that don't increase in value over time - such as a new stereo TV or DVD player- debt is working against you.

If these bad debts (or good debts for that matter) get out of control, your assets may be at risk. Even if you miss a payment here and there, your credit score will more than likely go down, which increases your interest rate on current and future purchases. It's a vicious cycle: missed payments lead to higher interest payments, which are more difficult to pay... leading to more missed payments and even higher interest rates.

DISCLAIMER: This article is provided as information only and is not to be taken as financial advice.

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