Help and Advice About Dealing With Debt Problems

June 19th, 2010 | Posted in Debt Relief

For many people debt has become a curse. It’s become the primary source of stress for a growing number of consumers. But unless you’re independently wealthy, debt can be quite a necessity if you wish to make a major purchase like a home or an automobile.

Consumer debt is on the rise, and so are delinquencies. More and more consumers are turning to credit counseling to get their debt under control. And even with the tighter restrictions on bankruptcy, people are still filing. This data paints a harsh picture of debt, yet people still take out loans and use their credit cards.

The fact is that debt is not such a bad thing in and of itself. It can benefit us in getting the things we need and want. The problem lies in accumulating too much debt. It’s easy to get in over our heads if we’re not careful. And once we do, it becomes harder and harder to get out of debt.

By learning about debt and understanding what is an acceptable level of debt based on our income, we can steer clear of the debt trap all together. And if we’re already in too much debt, there are steps we can take to reduce it.

Good Debt vs. Bad Debt

Yes, there is such a thing as good debt. There’s only a few forms of debt have this distinction, but you need to know the difference. Some examples of good debt are:

Home Mortgage – Owning your own home has a number of benefits. But the reason that this is considered a good debt is because a home is an investment. As long as you keep up with the mortgage payments, you put yourself at an advantage by entering into debt because your home will normally appreciate in value over time.

Student loans – Getting a college education is a great investment as well. By earning a degree, you put yourself in a position to enjoy better paychecks over your lifetime.

Business Loan – though starting a business can be a high risk venture, the rewards in the form of profits can be substantial. However, some of the assets you purchase will depreciate rather than appreciating. But for practical purposes, you can consider this a good debt.

There are numerous examples of bad debt. Below are a few:

Auto loans – Having a car is a necessity for many, but a car loan is still considered bad debt. An automobile loses value over time rather than gaining it, so when it’s time to sell or trade you won’t recover your investment.

Credit Card Debt – Although credit cards can feasibly be used to purchase things that appreciate, they are in general considered bad debt due to the types of things that are usually bought with them. The overwhelming majority of credit card purchases are things that lose value.

Personal Loans – Most personal loans are taken out on high tickets items such as furniture, appliances, or even vacations. Many times these are things we need, even vacations help us recharge our batteries and become more productive. But none of these things appreciate in value, so they are considered bad debt.

Just because a debt is a so-called good debt, that doesn’t mean it can’t get us into trouble. It’s vital to maintain our good debt at a manageable level. Lenders take our income into consideration when lending us money because of this. But it’s also crucial that we look at our individual circumstances and not borrow more than we can comfortably pay back.

On the flip side of the coin, bad debt is not always taboo. There’s no harm in taking on some bad debt to get the things we need and want. But the smart thing to do is keep it to a minimum, only using it for things we really need.

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