Most people think that all debt is piled as one and when there is a bunch of debt, a financial future is gloomy. But debt isn’t all bad, there is debt which can actually help improve financial standings. We can look at bad debt as that which is from cash advances and payday loans. These are two good examples, but it does not cover the whole gamut. Personal debt is not a black and white picture. Learning to manage debt is the next step beyond identifying troubled debt areas.
Cash advance debt does not fall into the “good” category.
Before we really focus on the bad debt, let’s take a look at what is considered good debt. It’s the American dream to go to college and raise a family in a home. Most everyone will go into debt at some point in time, but if it is bettering your life and is kept at a minimum, then it will fall into the category of good debt.
- Student Loans – Believe it or not, these loans are considered good debt. Shop for the competitive rates, take out the least amount possible and try to use other avenues to help pay for college.
- Home Mortgage – Well maintained installment loans look great on your credit report. In order to qualify for good rates, you will need good credit when taking out the loan. If your credit improves over time, you can always refinance your loan to a better interest rate. It will also benefit future finances when a person does not overbuy. People with secure jobs and fixed incomes are better adept to making a 30 year investment. Buying a home which you are in homes your income will soon grow into may not be the best policy. If this is the case, you may want to rent a bit longer just to make sure your income increase does follow through with your expectations.
- Credit Cards – It is good to have a 2 or 3 credit cards open. Keep the minimum balance to less than 20% of your limit and always make the payments on time.
Notice that all of this “good” debt carries with it the stipulation that too much is not good. It’s a balance between your debt and your income. When you make your cost of living expenses fit tightly into your budget, it will not leave much room for unexpected emergency costs or for the trips or items you may want to enjoy along the way.
When the scale tips in the other direction and credit cards are maxed out, a mortgage is stressful. We see finances spiraling out of control when the utilities and/or groceries are paid for with the help of a cash advance. A key aspect to budgeting is planning for the unexpected or to live the dream lifestyle. We may never be able to afford to live in the well-furnished homes we see on television or magazines. Instead, focus on being comfortable in the life we do live.
I may not care as much about leather furniture as someone else, but my dream to take the kids to a theme park is pretty important. I have to pick and choose where I can splurge the little bit I do have left over. Spending income on keeping up with lifeplus the interest to make it possible only takes money away from securing a financial future.
