Do you want to learn how to draw the line on debt? If so, you’re like millions of other Americans. The economic crisis has left many of us strapped for cash and credit alike. The goal is to manage your bills and pay off outstanding debts during these troubled times so that your credit score will emerge unharmed. In this, the first of a four-part series, we’re going to take a look at the types of debt you should try to avoid.
All debt is not created equal. Some people go into debt to pay for items that will increase in value over time. That’s a good thing. Other people go into debt to pay for items that will inevitably drop in value. That’s not a good idea. Let’s take a closer look to learn why.
Let’s assume you charge $500 worth of groceries on your credit card in the month of November. With the holidays coming up fast, you don’t pay off the balance in full like you know you should. Instead, you make the minimum monthly payment that your credit card requires.
Fast forward to January. Interest has been applied to your grocery tab. Now that $500 worth of groceries will cost you $590 to pay off. (That’s assuming an interest rate of 18% – not at all uncommon in today’s economic climate). You’re paying almost a hundred dollars more for those groceries, and you don’t even have them anymore. Groceries are a consumable asset; that is, they don’t last long. To keep your debt from lingering long after the consumables are gone, use cash or a debit card to pay for things like clothing, toys, food, and home furnishings.
Credit card companies make their money by charging you fees and interest. Minimum monthly payments are designed to keep you in debt, not to help you pay off your balance. In our grocery example, you’d be lining the card company’s pocket by basically throwing away the $90 in interest. What else could you do with that $90? I’m sure you can think of something.
In part two of our series, we’ll look at what it means to carry healthy debt, and how a reasonable amount of good debt can improve your financial outlook. Don’t miss it!
Check out our free 15-page report, ‘Know Where to Draw the Line on Debt’. It’s full of information, calculations, tips and tricks for keeping your debt in check. This report is offered to our readers as a thank-you for visiting quicklyoutofdebt.com.