May 3rd, 2007
By Paul Christos
The amount of credit card and auto loan debt carried by the average US Household is a staggering $18,500 to $23,500 per household. At 6% interest, $20,000 of debt accrues approximately $1,200 per year or $100 of per month of additional debt. The worst part about carrying this much consumer debt is that there is no intrinsic value in carrying it. This is “Bad Debt” because the interest paid on it can not be itemized as a tax deduction on your income taxes each year. Mortgage interest expense (“Good Debt”), as an example, can be itemized and taken as a deduction on your tax returns. As a result I have made it my personal obligation to minimize this type of debt as much as humanly possible. I am a realist and recognize that different situations require different financial measures. So, I am not agnostic to the fact that, for certain households, taking on consumer debt is a practical necessity and enables day-to-day survival. What I would like to do with this article though is to provide some advice based upon my experiences and some practices that I have adopted over the years to help eliminate “Bad Debt”.
* Figure out who you owe money to and categorize it into either “Good Debt” or “Bad Debt”. This is the single most important thing you can do. “Good Debt” is debt that is secured by an asset that appreciates in value. An example here would be real estate. “Bad Debt” is debt that you take on in which there is no tangible evidence of an asset that appreciates in value. The types of debt that I put into this bucket are credit card debt, auto loan debt, personal loans such as installment loans, debt used to finance education but not technically classified as student debt and any other loan obligation that is not specifically represented as ownership of an asset that does not appreciate in value. That 52” plasma TV you put on your credit card or that Kawasaki motorcycle you purchased is not an asset that appreciates in value, therefore it is “bad debt”.
(more…)
Share This
April 20th, 2007
By Martin Sumner
Being severely in debt can be one of the most stressful situations we can find ourselves in within our everyday lives, and in recent years thousands upon thousands of us have begun to find our debts turning into a problem. Maybe your debts have simply got out of hand, with the repayments finally getting too large to handle comfortably, but a more common scenario is that a change in your financial circumstances or employment means that previously manageable debts are now no longer so easy to bear.
If you’re in this situation, you’re probably all too familiar with the gnawing fear that sits in the back of your mind, stopping you from enjoying life as you should. The sound of the telephone ringing can spark the fear, in case it’s a creditor calling to ‘discuss’ your situation, and it’s common to stop opening mail because of an anxiety about what bad news it might bring.
(more…)
Share This
April 13th, 2007
By: James Copper
Credit is essential these days. A person needs credit to be able to do almost everything, from buying a car to getting a utility turned on. Bad credit can be quite costly. That is why debt management is so important. Debt management is the way you acquire and handle your debt so that you can afford it.
The key to debt management is understanding your finances. You have to have a budget and you have to know what you can and can not afford. That may seem simple, but credit is actually designed to help you get what you can not afford and that is why many people end up with credit problems.
(more…)
Share This
April 6th, 2007
By Michael M Thomas
When you are stuck under a pile of credit card debt, it can often feel like it is impossible to find your way out. The easiest way to dig yourself out of credit card debt is to increase your income. Here are three easy ways to increase your income:
Sell the stuff you don’t use. Ebay estimates that there is $1,000 worth of unused merchandise in the average house. Take a look around your house and through your closets. What do you have that you don’t use anymore? Sell it in an online auction or have a garage sale in your neighborhood. That’s free money in your pocket. If your friends, family, or neighbors are too lazy to sell their own unused things, offer to sell them for them in exchange for a percentage of the proceeds.
Take on a part-time job. You probably already have a day job. An extra job on the side makes you extra money to pay off your bills. If you like sports, work at a sports bar. See if your favorite store will hire you to work a few hours a week (you may even be able to get a discount at these stores, which can help save you money if you shop there already). If you own a lawn mower and like to be outside, ask your neighbors if you can cut their grass for a small fee.
Ask for a raise. Hey, it can’t hurt. But don’t just walk into your boss’s office and ask for a raise. Present your case. Bring it up at an appropriate time. When your boss finished your performance appraisal, mention some of the specific ways you have added value to the company. Follow that up by stating reasons why you deserve a pay raise.
There are many ways to eliminate your credit card debt by increasing your income. Selling stuff you don’t use, taking on a part-time job, and asking for a raise are three easy ways that nearly anyone can do.
(more…)
Share This
August 13th, 2006
Debt Solutions - Good Debt vs. Bad Debt
By Michael Russell
Debt simply means that money was transferred between two parties. It implies that at a future date the loan will be repaid according to the repayment terms. Every time an item is bought we immediately go into debt. If the item is small, we can generally pay immediately and not see any long-term debt. Of course, there are many larger items that we all need but cannot pay for with cash. It causes us to go into debt for months if not years in order to repay.
Debt is not a terrible thing to avoid at all costs. Some people feel comfortable paying for everything right up front. Drive used cars, rent an apartment and pay for school once you have the money for it. All items that we buy either appreciate or deprecate in value over time. Buying a brand new car loses could lose 10% in value the second it leaves the dealership’s parking lot. At that point, if you sold the vehicle, the value of the car would not even pay for the remaining balance due on your auto loan. Even if the driver uses the vehicle for several years and finally sells it, they may still sell upside down which means they did not receive enough money from the sale to cover the loan. Perhaps you need to take out an additional loan to cover the original auto loan. This scenario is a great example of bad debt. A great financial rule is to never go into debt to buy something that loses value over time. One could make an argument that if you wait long enough the value of the car would start to appreciate again. This could happen after waiting several decades. Investing that money into bonds during that same period could result in smarter investment.
(more…)
Share This
ABC’s of Getting Out of Debt
