Mastering debt management is a necessary aspect of making your money work for you. A good place to walk the road to financial freedom is to learn about debt management, and you need to understand the difference between good debt and bad debt in the beginning. First, let me give you some definitions:
Good Debt: The cost of debt will be exceeded by the profit you earn by buying debt, that is, good debt.
Bad debt: Any profit whose cost of debt exceeds the income you can buy by buying debt is bad debt.
It’s that simple.
If you plan on going into debt, don’t be fascinated by the eyes that attract you. Debt management requires you to turn numbers. Yes, you can finance that car and fire it immediately, but is it worth it to pay $ 40,000 for a $ 19,000 car? Even if you have to use the last $ 5,000 as a down payment? If your answer is yes, it won’t help you. You have no debt management options. Stop reading now. Just say “no” to those who have common sense on the above issues, and I’ll give you some of the best gifts ever for my jewelry. When I was 16 years old, this gem fell on me. Someone told me that debt management is essential to wealth building, and anyone who knows nothing about debt management wouldn’t even consider investing $ 10,000 in a $ 100,000 car.
That would be counterproductive.
A real scammer would make $ 100,000 with a car worth $ 10,000. That’s debt management. Someone told me that the key to debt management is not to avoid debt completely. The key to debt management is to learn how to use debt for your own benefit. I have never forgotten this wisdom. It is a gem that can be applied to every aspect of our financial decision-making process. The difference between good debt and bad debt is that a good debt will pay off on its own and put more money in your pocket, while bad debt is a backlog of unnecessary things you cannot pay. Self-control. Now is the time to define another:
Any debt that is essential to your business or business management is necessary.
Examples of necessary debts include cars, houses, credit cards, student loans, and other expenses related to the recurring business you may have. To understand the necessary debt, it is important that, depending on the situation, the debt can be good or bad. This is very important. Since I know that most financial advisors will classify the items I mention as “good debt” or “bad debt,” I’ll explain why I call the above expenses necessary debt.
The American Dream has become the American Dream. Unless you have lived on a rock, you will know that this once the national investment is now under scrutiny. People are considered to have their home as the most expensive purchase of their lives. This is not always the case. In some cases, this is the most expensive mortgage in your life. It is not uncommon to find that the cost of obtaining a loan (interest) is higher than the principle of the loan itself. You will eventually have to pay $ 160,000 to the bank to lend you $ 150,000. So if you keep a home during the loan period, you end up buying a $ 150,000 home at $ 350,000. I know what you’re thinking, the value of the home will increase over time, offsetting the interest expense on loan.
Is that what you are thinking about?
Correct? Well, it depends on the property you have acquired. Still, judging by the millions of Americans who are homeless for foreclosure or under the mortgage, I think it certainly is saying that the property’s valuation is bad. If you can get a good deal on the house at the price you made when you bought it, then the mortgage you have on the house can be considered good debt. When I say you make money when you buy, I mean you get a house at a low price.
Even if the value is not appreciated, you will still make a profit when you sell it. This is the only time a mortgage is considered good debt. If you want a home just because you’re still holding on to the dream that America woke up many months ago, that’s the decision you have to make. Just understand that you will be in serious debt if you don’t get the kind of deal I described above. This is considered a necessary debt because you have to spend some money above your head on the roof, but you can always lease or lease until you find a deal worth locking yourself in for the next 30 years.
This is certainly a problem area. Car loans are the most easily misused debt. this is very simple. If you don’t have Mercedes-Benz money, don’t go out and ask the co-signer to help you pay for a car. Don’t go to the shady dealer around the corner where, you know, when you get in there, they’ll get $ 5000, and they’ll get you in whatever car you need, regardless of the income.
The result is usually a withdrawal, in which case you return to this website to read the credit recovery information. Another common consequence of this is that you are now stuck in a heavy ticket because you only set aside a small part of the asking price when buying. When you add it to the full auto insurance policy,t has to be paid monthly (in the case of a finance vehicle, you have to pay it in full), and all the other bills you have to pay are usually not money. You officially become that person in the 7 Series, Si. Since you have no gasoline, you rarely get it from the garage. Believe me. It’s not pretty. A car loan is a necessary debt because you have to get from point a to point b.
This is given, but it does not mean that you have to spend all your money on this. I’m talking to people who are going to buy a $ 60,000 car because they want something “reliable.” This is why most people go out and spend too much money on cars. Suppose you don’t know that Mercedez isn’t the only manufacturer making quality cars. Sorry, your bubble has burst. Just because you need a car doesn’t mean you have to spend money on a car foolishly.
The formula for determining if my car loan can be considered good debt is simple. I call it the 5% rule. Your monthly car payment cannot exceed 5% of your monthly income. For example, if you make $ 50,000 a year, which is about $ 4166 a month, your auto payment shouldn’t exceed $ 208.33 a month. If your car purchase installment is less than 5% of your income, you have made a wise investment, and this car loan is good debt. If your car payment is more than that, you are beyond your capacity and incur a bad debt.
Of the three examples I have given you, this is the easiest example for me to explain, and it should be the easiest example for you to understand. The only time you need to use a credit card is when you don’t have the money to buy the items you need. I’m not just saying when you don’t have money in your pocket. I mean, if you have money somewhere, you have to take it and use it. Credit card debt is the most expensive debt in the universe. I don’t know you, but I am making money instead of donating money. Anytime you give the company $ 5, spend $ 20 is what to do. The only reason to use a credit card is that the money you want to make from the purchase is enough to make a significant profit after deducting the product’s cost and the cost of the ransomware product.
The only exception to this rule is whether a credit must be established (see the credit section for details). I think credit card debt is an indispensable debt because when you are trying to start a business or start a business, sometimes you need more money than you have on hand. At these times, credit cards can be invaluable. If used for this purpose, credit card debt is good debt. I don’t think I need to tell you that shopping at Saks is bad. Three words: Great Depression. If you don’t realize that too much leverage can be fatal, you may never learn. Use it wisely.