Debt Relief - Some Basic Strategies to Getting Out of Debt

What is Bad Debt

Bad debt is paying interest on something that has no lasting value, pure and simple. For example, using a credit card to purchase a television and planning to pay it off in four or five months would be bad debt.

In the same way, purchasing a house with a thirty year loan is also bad debt. If you look at a loan chart you will see that it takes years (over fifteen) before you are paying more on the principle than on the interest. So unless you stay in the home for a very long time you will owe almost as much on the loan when you sell the house as when you bought it.

It’s for that reason that it is actually smarter to rent until you have a large amount of the home’s price saved up, and then get a ten or fifteen year loan.

Renting a home or apartment for $600 or $800 a month (rental amounts vary according the area, of course) will allow you to save money a lot faster than having a $1,000 a month mortgage plus all the other expenses that come with owning a house (higher utilities, yard expense, repair bills, property tax, etc.).

What if You Have Bad Credit?

If you have bad credit and want to get a credit card, it’s a good idea to limit the number of inquiries to your credit report to help keep your score from dipping even further. To do that you need to research the credit cards and decide which cards you’ll have the best chance of obtaining before you fill out any applications.

Typically, cards for bad credit will carry much higher interest rates than the prime credit cards available on the market - but there are benefits associated with having a credit card despite the higher interest rates. But be careful of how much you put on the card each month and pay the card off when the bill comes.

Debt Reduction with Debt Consolidation Loans

Debt reduction credit card consolidation is offered by money lending firms who bail out the people neck-deep in debts. What makes debt consolidation loans appealing is that various companies offer a combination of several debt reduction and credit repairing plans which aim to completely obliterate a person’s existing debt.

In the next post I will continue with the differences between a secured loan and an unsecured loan for debt consolidation, and some important tips for how to eliminate your debt without declaring bankruptcy. Don't miss it.