Do not prolong your debt situation by thinking certain liabilities are smart to hold.
You think your low interest mortgage debt is good? Think again. There is some comfort to think that being in the position of owing money to someone or some company can in some circumstances, be “good”. Suze Orman, arguably the world’s most popular personal finance author and guru, explains the supposed difference between “good debt” and “doubtful. Mortgages and student loans are examples of good debt, while auto loans and credit cards are bad. Some debt, like loans and high interest credit card debt, are certainly worse than others, but the rationalization of money owed to others by calling it “good” is a stretch.
When the public is willing to consider a particular type of good debt, the lending industry is the only winner in the long term. For the benefit of our personal finances, we will prosper more in the light of all bad debts and strives to eliminate this debt, even if we think it is good.
Do not fall into the trap of extending your debt situation while maintaining the idea that these forms are due are somehow good. Here’s why “good debt” is not all that great.
1. Mortgages. A mortgage on a house is a classic example of a type of debt to personal finance experts and real estate agents want the world to be at peace with. There is something to be said for mortgages: the reality is that only a small percentage of Americans would be able to afford to buy a house without access to a loan. The lending industry and government have always made as simple as possible to own a home. We can not escape the debt to the property in the near future.
The deeper reality is that the value of real estate increases at or slightly higher than the rate of inflation over the long term, but it is much more unpredictable in the short term – the length of the property more experience of people. Some believe that mortgage debt good because it allows a homeowner to high leverage, well positioned for appreciation, but it is risky.
In addition, the tax benefits to pay mortgage interest is often overestimated. Although most taxpayers see a return to increased thanks to the mortgage interest deduction, the benefit can not compete with the payment of interest at all. We are stuck with mortgages for the moment, but there is no solid reason to keep them longer than necessary, as one might do with something called “good.”
2. Student loans. Student loans are an investment in the future and a BA in hand significantly increase the lifetime income of a person compared with only a high school diploma. Again, the lending industry encourages unnecessary debt, and colleges and universities are accomplices.
There is no need to borrow money for college. In his forthcoming book, debt free U: How do I pay for college without an outstanding education loans, scholarships, or mooching off my parents, the author explains how Zac Bissonnette student loans can be more devastating to the situation financial individual as a mortgage. Did you know that bankruptcy can eliminate your credit card debts and your mortgage, but your student loan will not be forgiven? Even the government garnish your wages for social security in case of default on your student loans.
Bissonnette also shows how there is no good reason to borrow money for an expensive private college or Ivy League university when the quality of education you can receive and your earning potential is equivalent to or surpassed a cheap, local State College. Reconsider the assumption that you pay a higher price for quality.
3. Start up costs. Whether the company requires an initial purchase of inventory or have just graduated college and the need to buy appropriate clothing for career, personal finance, some experts advise beginners strapped to anticipate Future income and pay your expenses with a credit card or take out a loan today. That money, as money borrowed to invest in something without a guarantee of performance, is risky.
While it is true that success often requires taking some risks, consider different options for dealing with the worst case. Unemployment remains high, and many graduates last year are still not working with credit card balances increase. Most new businesses fail.
Even borrow money to finance the assets should be assessed as a house, a potential income of a person through education and a career or a business involves risk, and in some cases may be entirely avoided with smart preparation. You can hear some personal finance experts call these types of debt “good”, but they are far from beneficial. At best, they are like other debts, but could help improve your financial situation or quality of life at any given time. At worst, however, even this debt can destroy your future if it is not monitored, treated and eliminated.