Tread Carefully With Good Debt
You know you are rich when you can divide your debt into good debt and bad debt. There is an old saying that circulates widely in debt-free lifestyle content that says that if you have zero debts and you have ten dollars in your pocket, you have a higher net worth than most Americans. This may be true, but you are still less wealthy than people who owe millions of dollars in debt. They had to do something that would qualify them for enormous loans; even if most of the outstanding balance comes from interest and fees, the principal must have been considerable to start. If that were not the case, then the compound interest on the $500 in your savings account would have ballooned into something much bigger. Instead, you have a modest paycheck and a veritable Whack-a-Mole console of debt payments due each month. Your task is to prioritize which ones to pay down first with any money that is left of your paycheck after you make the minimum monthly payments. Is there such a thing as good debt in your situation, or is there just bad debt and even worse debt? For help developing a strategy for debt repayment, contact a Miami debt lawyer.
What Makes Good Debt Good?
One definition of good debt is that you have borrowed it to acquire an income-generating asset, such as a house that can become generational wealth or an education that will increase your income-earning potential. By this logic, business loans for starting a small business are good debt. Car loans could even fit the definition of good debt, since they give you transportation to work, but cars depreciate so fast, and car loans are so expensive, that it is almost always better to pay in full for an old clunker.
If you have not borrowed money for a big-ticket item, don’t. From a credit score perspective, good debt means something else. Your credit score gets a boost if you have at least one loan that goes away after it is paid off, such as a personal loan or mortgage, and one revolving loan, such as a credit card or line of credit. You get the same credit score benefit from one credit card with a $500 limit and one personal loan for $1,000 as you do for a six-figure home mortgage and five-figure home equity line of credit.
Can Credit Card Debt Ever Be Good?
Credit cards can be a major source of debt. Most people rely on them to tide them over until the next payday. If you use your credit cards for things you can afford to pay for in cash, reap the credit card rewards, and pay off the bills promptly, you can end up in the black. This is an unattainable goal for everyone else, though. The only way a credit card can make you richer or improve your credit score is if you can afford not to use it.
Work With a Debt Lawyer About Problems Caused by Good Debt
A South Florida debt lawyer can help you if you are struggling to repay debts that you were sure would make you wealthier. Contact Nowack & Olson, PLLC in Miami, Florida to discuss your case.
Source:
finance.yahoo.com/news/6-most-harmful-myths-debt-224650218.html
