What is a bad debt?
Paying interest on something that doesn't have any real value is a bad debt, plain and simple. For example, it would be bad debt to buy a TV with a credit card and plan to pay it off in four or five months.
In the same way, getting a thirty-year loan to buy a house is also bad debt. If you look at a loan chart, you'll see that it takes over fifteen years before you pay more on the principle than on the interest. So, unless you live in the house for a very long time, you will owe almost as much on the loan when you sell the house as when you bought it.
Because of this, it is better to rent until you have saved up a big chunk of the home's price and then get a ten- or fifteen-year loan. If you rent a house or apartment for $600 or $800 a month (rents vary by area, of course), you can save money much faster than if you had a $1,000 a month mortgage and all the other costs that come with owning a house (higher utilities, yard expense, repair bills, property tax, etc.).
What if your credit is bad?
If you have bad credit and want a credit card, it's best to limit the number of times your credit report is looked at. This will help keep your score from going down even more. Before you apply for any credit cards, you should do research on them and figure out which ones you have the best chance of getting.
Cards for people with bad credit usually have much higher interest rates than the best credit cards on the market. However, even with higher interest rates, there are still benefits to having a credit card. But watch how much you charge each month and pay off the card when you get the bill.
Paying off debt
Paying off debt Credit card consolidation is a service offered by companies that lend people money and help them get out of debt. Debt consolidation is appealing because different companies offer a mix of debt reduction and credit repair plans that aim to get rid of all of a person's debt.
Secured loans to pay off debt
There are both secured and unsecured loans that can be used to pay off debt. Secured loans are loans that are backed by something, like a home. Because the loan is backed by real property, it is easier to get than other kinds of loans.
Home equity loans are secured loans, which means that the loan is backed by the value of the home. Even though secured debt consolidation loans have a lot of benefits, such as a large loan amount, a longer time to pay back the loan, and a low interest rate, they also have one big drawback. This is because if you don't pay back the loan, the collateral could be taken from you. For example, if you miss several payments, your home could be taken away from you.
Loans to consolidate debt without collateral
There is no worry that the collateral will be lost if the unsecured debt consolidation loan is not paid back. If a borrower wants to consolidate unsecured credit card debt, he or she must show proof of a stable income and financial situation, if they have any. Most of the time, the interest rates are higher than for a secured loan to consolidate debt.
What to do when you have a lot of bad debt
First, stop spending and pay as little as possible each month. Don't buy any more things that you don't really need. Don't spend $150 on shoes for yourself or your child. Instead, buy $15 shoes.
Second, start by getting rid of your smallest debt. Then, as you pay off each credit card or loan, use the money that was going toward that debt to start paying off the next smallest debt.
For instance, if you owe $8,000 on one credit card and $2,000 on another, you should pay off the $2,000 debt first. Then, pay off the $8,000 debt with the money that was going toward the $2,000 debt.
Even though you're putting every extra dollar you have toward the debt with the lowest balance, you're still paying the minimum on the other debts. If your income is so low that you can't even pay the minimum payments on your debts, you need to get help from a reliable debt counsellor.
Depending on how much debt someone has, it could take a number of years to pay off all of their debts. But it's better to pay off the smallest debt first and then move on to the next biggest one than to try to pay off the biggest debt first or all of them at once. So get started. If you start right away, you can get out of debt faster.
