Debt is debt. That’s a simple statement that carries a lot of emotion. If you buy something and don’t pay for it in full, you have debt. Most of us fall into that category. There are times we buy and pay in full, and there are times we buy and make payments. Payments equal debt.
Is there such a thing as good debt or bad debt? Financial experts disagree. Some believe all debt is bad debt. If you can’t pay for it, don’t purchase it. Others believe there is good debt because many people cannot afford to pay for a house or a car or even higher education in full.
Bankrate.comsays, “As a general guideline, your monthly mortgage payment, including principal, interest, real estate taxes, and homeowners insurance, should not exceed 28% of your gross monthly income.” Others may go as high as 35%. But remember this amount does not include your other debts.
“The amount of personal debt in this country is ever-increasing, and a large part of the reason is that credit has never been easier to get” according to bankrate.com. When you take a close look at your other expenses, are they paid in full or are you making payments on them, also?
Debt is a concept that America understands quite well – or at least thinks so. But is America allowing making payments – getting into debt – to take the place of saving money and paying for purchases in full?
One way to help curb debt is by paying off the largest amount of debt we use consistently – credit cards. Credit card interest rates can go up to 29.99% – the maximum allowable interest rate on any credit card, per valuepenguin.com. That is a lot money to pay. Add that percentage to what you purchase, and you can see the real price of your purchase.
American Express recentlychanged how it calculates debt:
“You may see interest on your next statement even if you pay the new balance in full and on time and make no new charges. This is called ‘trailinginterest.’ Trailing interest is the interest charged when, for example, you didn’t pay your previous balance in full. When that happens, we chargeinterest from the first day of the billing period until we receive your payment in full. You can avoid paying interest on purchasesby paying yourbalance in full and on time each month. Please see the ‘When we charge interest’ sub-section in your Cardmember Agreement for details.”
You need a car. Can you pay for it in full or do you have to finance it? If you cannot pay for it in full, you are in debt. Some financial experts feel this is good debt because it is a necessity. Others feel this is bad debt because it does not appreciate – gain value after purchase.
The bottom line for you is to first take an honest look at your finances now. Can you afford to make that purchase – no matter what it is? If so, buy it. If not, should you finance it and make payments or should you save up to purchase it when you can pay the amount in full? Either way, be honest about you finances.
Brenda Gayle Bryant is the owner of the gayle group, is certified in QuickBooks and Microsoft Office, and is a past board member of both the National Speakers Association and American Society for Training and Development. Although she has been a corporate consultant for many years, her passion is teaching people sound financial techniques. You can reach her at firstname.lastname@example.org or www.worthaccount.com/988037.