Money palava

Bad Debt - Your Number One Enemy. People typically get into debt for various reasons: a.) Purchases small or large. b.) Unexpected life events and their consequences like medical bills or damage to property. c.) Many people get into debt because of lack of control over personal finance. For the reasons mentioned above, we tend to use a variety of products to finance our needs. Three major categories are the following: 1. Mortgages – They are used typically for financing your housing needs. In some cases, people also borrow against their assets to finance consumption. Mortgages can be very powerful, and you can make it work for you instead of against you. They typically have a high value and an extended repayment period. 2. Loans – Loans are used typically for financing medium or large purchases like cars or equipment. Loans in most cases are dangerous as they are usually used for buying depreciating assets i.e., assets that lose value over time. Cars would be a great example here. 3. Credit cards – These are used purely for consumption purposes. It is very easy to take on more debt than you can handle using credit cards. Also, except payday loans or cash loans, credit cards are by far the most expensive type of debt. THE KEY DIFFERENCE BETWEEN BAD DEBT AND GOOD DEBT Yes, there is a difference between good debt and bad debt. In simplest words: Good Debt – also referred to as leverage, can help you in building wealth and passive income. You can buy an asset such as rental property, finance it with a mortgage and grow your cash flow. Bad Debt – This is an inefficient way of using borrowed money. The key mistake here is that the amounts borrowed are used for financing day-to-day expenses or for purchasing items that decrease in value over time. HOW BAD IS YOUR BAD DEBT? Each situation is different but you can use the following guidelines to check any warning signs in your personal situation: 1. You are using more than one bad debt products – credit card, overdraft facility, cash loan, car loan etc. 2. You owe more than 50% on your credit cards 3. All your monthly bad debt payments sum up to more than 25% of your income. WHAT ARE THE KEY STAGES IN FIGHTING BAD DEBT? Three typical stages lead to bad debt elimination: 1. ORGANIZE YOUR DEBT You need to make a list of every loan product that you are currently using and describe it with the following details: total amount to be paid, monthly cost. 2. PRIORITIZE YOUR DEBT As soon as you understand your debt, you need to decide which one you will pay down first. My suggestion is to attack the ones that are the smallest in total amount to be repaid. Using this method, you will see effects faster, and you will get more disposable income shortly. 3. ELIMINATE YOUR DEBT Eliminating debt comes down to making extra payments against what you have borrowed. You need to take a good look at your budget and see where you can cut on expenses in order to use this extra money for fighting debt. You are also recommended to think about additional sources of income. Every dollar counts when it comes to fighting debt. WHY IT IS IMPORTANT TO FOCUS ON BAD DEBT ELIMINATION? Bad debt is not only costly but can lead to serious consequences in case of loss of income. Bad debt is also slowing you down on your road to financial independence. Bad debt, if not managed properly, will grow over time and lead to serious financial challenges.

Culled from: https://www.growfiniq.com