In modern America, it is difficult to get through life without taking on some kind of debt. Most people cannot afford large purchases such as a house or education early in their lives, and so they take out loans to help them acquire these things earlier. Not all debt is harmful to your financial health, but it is important to make good decisions early in your life about what kind of debt to take on and what kind to avoid. Taking on too much debt with high interest rates can permanently destroy your hopes for a rich life and good retirement.
Good Debt
Loans which help you to invest in yourself or develop assets that don’t depreciate are good debt. Student loans, mortgages and loans for necessary medical procedures are all examples of debt that provides future returns in heightened income or lowered expenses. Loans for these items can usually be found with low interest rates, and when used wisely, can help secure your future wealth. Of course, you should always make sure that you will be able to afford the payments when they come due before taking out any loan.
Bad Debt
Consumer debt with high interest rates and no future return is the kind of debt that you should avoid. A good rule of thumb is that if you can eat it or wear it, you will not have any future return to show for it. Some credit card interest rates run as high as 25%, and if you only make minimum payments, you might end up paying more interest than principal over the decade it may take you to repay the card.
Try to evaluate debts as you would any other investment. Make your money work for you, and you will have a comfortable retirement to look forward to. But if you fail to carefully consider the kinds of debt you take on, your hard work will go towards paying credit card companies rather than yourself.
Sep 03 2010
Clear Debt – Good Vs The Bad
Jan 11 2010
How Bankruptcy Affects Interest Rates on Loans and Credit Cards
If you’ve recently filed bankruptcy, you may be concerned about what interest rates you’ll receive on future loans and credit cards. This is a common concern. Though you may feel that the credit card offer you received in the mail has a ridiculously high interest rate, you’re not sure whether or not it’s the best you can get in your current situation. This article will offer some information on how bankruptcy affects interest rates on loans and credit cards:
Interest Rates on Credit Cards
In a perfect world, credit card interest rates would be comparable to those of mortgages. Unfortunately, credit cards are unsecured loans, and this represents a significant risk to the lender. For this reason, credit card interest rates will always be high, even for people will immaculate credit. After bankruptcy, you can expect the highest interest rates charged, which is generally between 25 and 29.9%. However, once you’ve established a relationship with that company and proven that you can pay your bill on time every month, they will most likely lower your interest rate. Compare credit cards from multiple companies in order to find the best rates and terms and choose a reputable lender. Make sure that they report to all three major credit reporting bureaus monthly so that you can start rebuilding your credit.
Interest Rates on Auto and Mortgage Loans
For a couple of years after you file bankruptcy, you’ll be stuck with sub-prime mortgage and auto loan interest rates. This can require that you pay a much larger interest rate than someone else with credit that allows them to get approved for a prime loan. However, if you can wait a couple of years, you will be more likely to get approved for a prime loan. This can save you thousands of dollars over the life of the loan. In order to ensure better rates after a couple of years, start with small credit accounts and pay them on time every month. This will allow you to build credit and present yourself as a responsible borrower. This is a lenders biggest concern after a person has filed bankruptcy — that they’ll become unable to pay their debts again.
If you can prove that you can pay your debts, you will become much less of a risk. This results in interest rates that are much lower than they would be if you applied immediately after your bankruptcy was finalized. Here is a list of recommended Adverse Credit Home Mortgage Lenders online. It’s important to use a reputable lender online to make sure your personal information is secure.