Although it is possible to live fully free debt, it is not necessarily something smart. If we are on average at the population level, there are many people who get enough money to pay cash some of the purchases that we do in our lives: houses, cars, education, travel, etc. One of the most important considerations when buying credit or loans, if the debt is good or bad.
Good debt is an investment that will grow in value or generate long-term income. Examples will pay private schools for our children. Adequate education, even if you have to pay with credit, increase value for future workers and increase future income potential.
Getting a mortgage to get a house is usually considered a good debt too. Mortgage can be deducted in terms of paying taxes, and even though they are often long-term payments (usually for several years), payments rarely cover the full salary of someone who is allowed to use the remaining our money in investing and other expenses. At present there is a fact that many people hang in a awkward position because the financial crisis that occurs globally, but even though a house is debt, eventually it will provide long-term benefits.
Vehicle loans are also considered good debt, especially if the vehicle is very important for your work. Unlike houses, cars, and trucks lose value from time to time, and it also produces costs.
Bad debt is debt obtained by buying items that quickly lose their value and do not generate income in the short term or long. Bad debt also has a very high average flower, such as a credit card for example. The general rule is to avoid this bad debt: if you can afford it and do not need it, do not buy. If you buy a pair of luxury shoes for 300 dollars with your credit card, but you have a red level and difficulty on the card account, shoes will end at a cost of more than $ 300 that you spend at first because of interest. So, how do you find out if you spend your money in a good or bad way?
These tips can help you:
If you need a loan: Think carefully in what you will buy with it! If you invest in a new business, this is a smart debt because you will get a profit from it, but make sure that when you analyze business, you add a loan interest rate to your expenses.
If you are going to buy a larger house, think that you have to pay a bigger tax for a larger house, so, think if you spend your money smartly and if your monthly money entrance will be enough to pay both: mortgages and taxes ,
The same thing with the car … the car produces a lot of expenses … Can you buy it? Some basic strategies for money management, you can control finance and start saving for the future. These are 5 steps for families to complete finance:
1. Set the budget. When you can see clearly where you spend your money, you can plan and use their resources accordingly.
2. Spend wisely. After setting a budget, know how and where cut costs.
3. Pay your bill on time. Save the calendar due date and how much every month. Make sure you pay the bill on time to get rid of fines and late fees.
4. Save for an emergency. Identify the way to save a predetermined monthly amount, say $ 20. With emergency funds, you are ready for unexpected.
5. Out of debt. Start paying more than the minimum amount every month and try to get rid of all your debts.