What Is Your Debt Load?

Basically, your debt load is money that you owe, but there are two kinds of debt. One is the debt that allows you to gain a long-term goal such as owning a house, financing your education or even going into a financially solid business. This is seen as a 'good debt'.

The government even makes some of this debt tax-free because it is seen as valuable debt. It will eventually get you some worthwhile gain, or an investment in your future.

The other kind is a debt is called 'bad debt' and is that which is used for consumer spending. This may include home equity loans that are used for unnecessary additions to the home or to pay for other luxury items or simply spending on pleasure.

It can include the purchase of a car, though if your car is necessary to get you to work and is also moderately priced, then it can be classed as 'good debt'.

Leasing a car is always classed as bad debt because people who lease cars usually choose those models that they can't afford to buy. It is really dead money, because in the end you still have nothing of value.

Is Your Debt Load Good Or Bad?

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It may seem easy and a good thing to be able to pay for your larger purchases with a credit card or by getting a loan, but remember that there is always interest charged that adds to the debt load.

If you take out a loan for say $8,500 at an interest rate of 11% and pay off only the minimum, you may be able to afford those payments, but they will go on for the next 29 years and by then you will have paid back double the original amount. Is this what you really want? ... 29 years is a long time to be paying the same debt.

How much better would it have been to saved up first, then kept the extra money - the interest - for yourself? Of course, it isn't always possible to wait to save up that amount. You may need a reliable car right now to take you to that job.

In this case, make sure your loan allows you to make larger payments, so you can pay it off faster without being penalized with higher interests. The faster you pay it off, the less interest you will have to pay.

No debt is a good debt load, but some debt, like utilities, food and clothing, are necessary. The important thing to remember is to control your money and use it as a tool, rather than letting it control you.


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