Understanding Debt
Debt is simply the money you owe - it is an amount of money or other property that is owed by one person, organization or company. It is not the credit you owe as credit turns into debt. Getting into debt is very easy and maybe fun for some people. At first people are happy, they can buy without having to pay with cash, and they can afford to get a car even without having the budget. But seldom do they they realize that they will live and drive this car for 12 years to make payments and pay huge interest for their showpiece!
Who hasn't heard of cholesterol? Just like cholesterol, where there is good and bad cholesterol, debts come in two versions. Good and bad debts. Debts can make your life easier or ruin your life but however bad your debt problems, there is a solution. People and businesses who know how to handle debt and how to manage their credit can take advantage of debt while people especially the young who do not have knowledge about debt management and creating debt reduction plans are always in trouble.
Debt can also be classified as temporary or chronic debts.
In most cases, there are very good reasons to take on debt. For example, students take loans which is sometimes necessary provided they know how to handle and pay off these debts on completion of their studies.
Also taking on debts for setting up a business is good but it depends how the structure is going to be setup. You must have a clear plan, and know how much money you would need and most importantly, how to pay it back.
If you can afford to pay cash and limit the risk of taking on debt, do it! Do not hesitate to pay by cash when you have the money.
The problem arises when you borrow money but do not use it productively. Debts are good when they are invested, not used as spending money.You must have total control over your debt and have a clear plan on how to pay back your debts. Create plans, especially rapid reduction plan.
Fixing Your Credit
We are a country in debt. Not only is our government in debt, but we, as Americans, are in debt ourselves, and the problem is just getting worse! Recent studies have shown that ninety percent of Americans have at least one credit card – and they are using that card – A LOT!
The average family carries a balance of between $7,000 and $10,000 on all their credit cards. Over $1,000 per family goes towards interest every year. And that’s just the average – some people owe much more!
Overall, Americans spend over $1 trillion every year on their credit cards, and owe more than $500 billion on it. If debt continues at the current rate, then one family in a hundred will be forced into bankruptcy. Over 90% of Americans’ disposable incomes are spent paying back debts.
When you add credit card debt to the regular bills we have to pay each month, our budget goes through the roof! As a result, some bills go unpaid and others are paid late.
Both of these instances can damage your credit sometimes so much that you think there’s no way you will ever be able to get out of debt and use credit for something important like a home or a car.
The truth is that you can get out of debt and repair your credit nearly to what it was before you had credit problems. It takes some time and a little work on your part, but it IS possible.
Loan approvals depend a lot on your credit score. This is what determines if you can get credit, what your interest rate will be, and how much money potential lenders will give you. A good median score is 750, but the higher your score is, the more financially sound you are.
While it’s always a good idea to try and stay away from credit, not everyone has a hundred thousand dollars lying around to buy a home or twenty thousand to buy a car. Heck, for some people, scraping together five thousand dollars for a good used car is difficult. That’s why we need credit. So we can buy things which we cannot afford to pay cash for.
The trouble begins when people begin to buy everyday items such as groceries and clothing on credit cards. Then those bills begin to get bigger and bigger until pretty soon, they’re paying the minimum amount due which will take forever to pay off. Plus, a lot of people just continue to grow their credit card debt even when they have a large balance on their account.
Your credit score defines who you are to businesses and you want it to be as high as it can be. It doesn’t matter how bad your credit is now. There are ways that you can raise your credit score no matter how low it is now. Don’t despair; just get started – right away!
***Note: This article is from a website that was recently merged into this site and may not represent the views of the sites owner. ***
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