A lot of people dream of getting out of debt. Maybe you are one of them. The beauty and freedom of being debt-free, of not owing anything at all to anyone is an extremely desirable prospect, one that deserves really serious thought and action.
All debt is not the same. There are some types that are terrible to have; some others are not so bad. So which is which?
It can be helpful to sort debts into one of 3 categories: consumption debt, use debt and investment debt.
Consumption Debt is debt acquired to spend, use up, without any residual value. An illustration would be cash you borrow for taking a vacation. You borrow the amount of money, spend it on the vacation and afterwards there is nothing of hard cash value left. Oh, you may likely have some good memories as well as good feelings, but nothing which you could cash in
Most consumer credit card debt is consumption debt. Most personal credit card debt is bad. It's the costliest and most stressful type of debt to have, with high rates of interest and charges as well as rigid repayment regulations. If you are delayed with a payment the terms could change and tighten up on you.
Consumption debt is the worst kind of debt to have. It is usually to be avoided, and of course , if you have it, you should be paying off credit card debt first.
Use Debt is financial debt that you get with acquiring something to use, like a car, a truck, a boat or even an airplane, for instance. Use debt is usually secured by something of value but that could be depreciating every month. It's not good, but might be necessary to provide you with something that you need to work or to transport oneself to work. It is bad, but not all that bad.
Investment Debt is debt you acquire during buying or acquiring assets which will generate revenue or savings in the future. Examples can be college loans that will help you get a university degree or perhaps advanced degree, a home mortgage loan that lets you acquire a home, build equity rather than pay rent. Investment debt puts money-making or perhaps saving assets that you could use within your control.
Investment debt, to acquire real money-making assets may be almost a good thing. Better than doing without and not having the ability to produce the income or save the money that the assets obtained can provide.
When you are paying off debt, you will want to pay off credit card debt first. Investment debts would be the last to be paid.
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