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Good vs. Bad Credit Debt
Do you know the difference between good and bad credit debt?
Most everyone seems to think that all debt is bad, but that is
not always the case. In fact, there are some instances where good
debt can actually help your financial situation.
The differences between good debt and bad credit debt will
affect every loan you get and can even make the difference in
getting a new job. Here are a few examples of what determines
good debt vs. bad credit debt.
Good Debt
Good debt includes anything that is too expensive to pay cash
for but is still something you need. Buying a home is an example
of taking on good debt because you need a place to live.
Most mortgages have lower interest rates compared to high
interest debt like credit cards. As long as your monthly payment
is within your budget, a mortgage gives you an excellent credit
reference.
Financing a car is another example of good debt especially if
you plan to drive it after your loan payments have stopped. The
key thing to remember is shop for the lowest interest rate
possible.
Sometimes taking out a home equity loan makes sense to pay for
a car because the interest rate is lower than an auto loan and
the interest is tax deductible.
Having good debt and making payments on time gives you a good
credit rating. That good rating allows you to borrow more money
at better interest rates and can possibly help your financial
position.
Bad Credit Debt
Bad credit debt is any form of debt with a high interest rate
for things you really don't need. An example would be to charge
an expensive vacation on a credit card that you can't really
afford.
The worst form of bad credit debt is credit card debt because
it carries the highest interest rates. It's easy to over extend
yourself with credit cards and it is by far the way most people
acquire bad credit debt.
The quickest way to recover from bad credit debt is to pay
credit card debt down or pay it off completely. The best way to
pay credit card debt down is start with the highest interest rate
card first. Then, pay on the debt with the next highest rate
until you have paid off all of your credit card debt.
Bad credit debt can also happen if you are continually late on
paying back borrowed money or you don't pay it back at all. Once
your credit rating is affected in a negative way, it will hurt
you financially.
Bad credit debt can keep you from qualifying for loans, credit
cards and may even hurt your chance for new employment. Even if
you could qualify for a loan, it would be at a higher interest
rate than if you had good credit.
The smartest thing you can do is to pay your credit card debt
off as quickly as possible to avoid paying the high interest.
While good debt will help you financially, bad credit debt will
have the opposite affect.
In today's world it's next to impossible to live debt-free so
it's important to know the difference between good and bad credit
debt.
Copyright © 2005 Credit Repair Facts.com All Rights
Reserved.
This article is supplied by http://www.credit-repair-facts.com
where you will find credit information, debt elimination programs
and informative articles that give you the knowledge to correct
your own credit and credit report. For more credit related
articles like these go to: http://www.credit-repair-facts.com/articles_1.html
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