Understanding Debt Better
March 25th, 2009 | by Administrator |Not all debt is bad. While you might consider it to be so at the moment, when all you can think about is the overwhelming amount of debt that you need to repay and the problems that it has caused, you also need to understand that often it is worthwhile having a controllable and manageable amount of debt.
For a start having debt on appreciating assets such as a mortgage on your home can be a good thing. The value of your house will be increasing overall, despite current economic conditions, at a rate that is far greater than the amount of money that you could save over a long period of time. Quite possibly you would never be able to save the amount of money required to purchase a house in the first place. Remeber that properties have proven to be good medium to long term investments that can ride out short term economic downturns.
For most people their mortgage will be the only type of debt that is worthwhile having simply because the advantages far outweigh the cost of the debt in the form of interest. Traditionally mortgages have always has lower interest rates set than short term forms of borrowing.
The debt that is incurred for purchasing items that can’t be regarded as assets, for example motor vehicles where they are depreciating and you are losing money the longer you own them, can’t be regarded as good debt. Not only is the value of the goods depreciating but you are paying interest taking the total repayment way over the original price.
Credit cards are one of the biggest causes of financial problems in the country but they too have their uses and in particular when you’re trying to rebuild your credit history by taking out smaller amounts of borrowings and paying them back on time all the time. Getting small amounts of credit card debt and repaying it, can help you to move on to personal loans and then eventually you’ll have the opportunity to get a mortgage to purchase a house again even if your past credit history has been bad.
So you can see that in the right circumstances there are various reasons why debt can help you have a more fruitful life.However, racking up restaurant bills and purchases of the latest fashion items on your credit card can never be regarded as good debt in anyone’s books and is most likely to lead you into problems.
