Category: | Personal Finance

Understanding Debt Better

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Not all debt is bad and while you might consider it to be so at the moment when all you can think about is the overwhelming amount of debt that you need to repay and the problems that it has caused, you will also need to understand that often it is worthwhile having debt.

For a start having debt on appreciating assets such as a mortgage on your home can be a good thing because the value of your house will be increasing at a rate that is far greater than the amount of money that you could save and quite possibly you would never be able to save the amount of money required to purchase a house in the first place.

For most people this will be the only type of debt that is worthwhile having simply because the advantages far outweigh the cost of the debt in the form of interest.

The debt that is incurred for purchasing items that can’t be regarded as assets, for example motor vehicles where they are depreciating and you are losing money the longer you own them, can’t be regarded as good debt.

Credit cards are one of the biggest causes of financial problems in the country but they too have their uses and in particular when you’re trying to rebuild your credit history by taking out smaller amounts of borrowings and paying them back on time all the time.

Getting small amounts of credit card debt and repaying it, can help you to move on to personal loans and then eventually you’ll have the opportunity to get a mortgage to purchase a house again even if your past create history has been bad.

So you can see that in the right circumstances there are various reasons why debt can help you have a more fruitful life.

Racking up restaurant bills and purchases of the latest fashion items on your credit card can never be regarded as good debt in anyone’s books.

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