This song has nothing to do with finance but these lyrics came to mind when writing this. Many people decide to get into debt because in the moment it is the only thing they can do. Let me just add everyone makes financial mistakes. No one is perfect and it takes lots of experience and learning to reduce mistakes.
Credit Card Debt
While this credit card debts can
financially help you in the future if you pay on time and build up your credit
score, it is usually not a wise idea to get massive credit card debt. This kind
of debt could take years to pay and you would most likely be paying a lot of
interest on it. Now you might be someone who currently has a credit card debt
and are thinking its not that bad. Well think of it this way, imagine how much
you could save if you didn't have to pay back your debt as well as interest.
Credit cards are known to have some of the highest interests rates and the
repayments are made to be more costly to the consumer. Not only is credit card
debt bad, it also reduces your self-control, messes up your budget, and it can
lead to bankruptcy.
Car Loans
"A Car For All Budgets",
"Affordable And Like New", "Great Prices. Great Vehicles. Great
Service", "With Auto Loan Rates So Low, All You Have To Do Is Pick A
Colour". These are all examples car sale guys will try to get you to buy a
car even if you cant afford it! Let's face it though, new cars smell great!
Look great! and with the loan rates the car investment sounds pretty good for
your buck. However, as soon as you drive that car out of the lot, it
depreciates in value massively. Usually a car loses about 10% - 15% in value
which now it doesn't sound like a good investment idea. Instead, have a look
into getting a car in your budget or a used car or join a car share program.
Not only are cars a bad debt, they also cost a lot to upkeep. Cars always need constant
services, you will need to pay for insurance, petrol, registration and more.
Personal Loans
Personal loans can be beneficial at times but
usually they are not. Personal loans are very similar to credit card debts.
Personal loans can be used to buy miscellaneous stuff, holidays, electronic
gadgets, and consumables. It can be hard to keep up with the fast paced
lifestyle and shiny new things coming out into the market constantly but if it
isn't important it is best to wait. Some expenses that you may think to
be important to keep up with current times, can be a waste of money, such as
branded clothes, luxurious vacations, or the latest smart phones. Think about
all that wasted interest money and what it could have been used for instead.
Good Debt
Yes, there are some good debts out there in the
world. Initially some of these debts can put a financial strain on yourself but
with regular payments and continued growth in your investment, it can be
turned into a good debt. Usually a good debt is occurred when you are investing
in yourself or something where the value will increase overtime. Good debt can
also increase someone's wealth in the long run.
Mortgage
This kind of debt is a growth orientated asset as
real estate usually appreciates in value. If a mortgage is on an investment
property, not only is this asset growing in value but it has also become a
stream of income. A mortgage is often a huge milestone is someone's life
and it is definitely worth celebrating. If this mortgage is for a house
for yourself, it is sometimes known to be cheaper then renting and once the
house has been paid off, there's a massive asset on your side. On a side note,
a mortgage can improve your credit score if payments are always on time.
Education/ student loans
Student loans are one of the most common debt
people have. This is a debt because you are investing in yourself and you will
most likely get an increased income because of it. This kind of debt can
usually be pay for itself if a few years which is great! there is a saying that
"knowledge is more power" and this means anything can be achieved
from getting that dream job you want or becoming an entrepreneur and starting your
own business. One of the good things about student loans is that if you are in
Australia, you don't have to pay it off until you are getting paid over a
certain amount.
Business loan
I am sure almost every business has taken out some
sort of loan to get the ball rolling or to increase their profits in the long
run. This kind of loan is a perfect example of a good debt to invest in
yourself. If your business succeeds and increases your income over time,
your business investments are seen as good debts. Initially, you would need to
pay off the loan out of your own pocket but after some time, your investment
should be paying for itself.
Being in debt is not always as bad as it is pointed out to be but ensure you always understand the risk you are taking and read the agreement that is set out in the debt before signing. Debt management is important for everyone to understand how to manage their assets and how to create wealth for themselves.
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