How to Avoid Bad Debt
Most of the time, you have a choice when it comes to getting into debt. Some things are worth going into debt for:
Buying a house if you plan to stay there for at least a few years, and if you can get a good interest rate on your mortgage loan, and if it’s not stretching your finances; buying a vehicle so you can get to work or school; student loans so that you can go to school. Most other types of debt, however, involve luxury rather than necessity.
It’s not a bad idea to have a credit card that you can use in case of emergency, but you need to understand what the meaning of “emergency” is. The need to get a new designer outfit for that upcoming high school reunion is not an “emergency”. And, for that matter, an upcoming holiday or birthday is not an emergency either.
Ask yourself – if you can’t afford to buy a pricey present, or presents, is going into debt to buy them the wisest decision? Because odds are you will NOT have paid this present off by the time the holiday or birthday rolls around next year…and what is going to be different next year at the next holiday? Will you be forced to go into even more debt if you want to buy more pricey presents?
Before you apply for credit or run up your credit card, you ALWAYS need to stop and question yourself as to the necessity of this purchase. Is this purchase contributing to your future and your family’s future wellbeing, the way a house or a college education will? Is it a practical necessity, the way a vehicle is? If the answer is no…it is very rarely a wise decision to take on that debt.
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