Debt has become such a dirty word these days, and in many cases, there is good reason for that. Americans are saddled with unheard of amounts of debt and the problem is not just going to go away. In some cases, debt is absolutely necessary, while in others, it is beneficial. The key is knowing which kinds of debt to avoid, and which ones to focus on. Let's take a look at some scenarios of taking on debt, and whether or not it would be worth it.
Scenario #1 -
"Stuff" You've just bought a new house or moved into a new apartment. It's looking a little bare around the edges and you feel the need to start nesting and making the place look nice. You don't have a lot of money to spend on new furniture, appliances or electronics, but you really want to have some new stuff. If you're sitting on the floor, you may even need new stuff.
So, you head off to ye olde furniture mart and stock up on everything you've ever dreamt of owning for your home. You use the store's "no interest for twelve months" plan and immediately stop worrying about how you're going to pay that off. Soon, those payments start to stack up and at the end of those twelve months, you get slapped with a really high rate that puts you into debt even further.
This is a prime example of how going into debt like this is not worth it. While we all need furniture, we don't necessarily need the best or the most expensive models. You can get an awesome couch by trolling through classifieds and spending less than $200. The same is true for appliances and electronics. Never fall prey to those "no interest" deals, they will only end up hurting you in the end.
Scenario #2 -
Investments. Now let's look at a little different scenario. In this case, you have an opportunity to get a fantastic deal on a house that is used as a rental property. The tenant has signed a long term lease and maintenance costs are minimal. You don't have enough in the bank to buy the house outright, so you consider getting a mortgage for the property.
Your mortgage will cost $550 per month, but the tenant is paying $850 a month in rent. That means that even though you are going into debt on that property, you'll actually be making $300 extra a month as a result. This is a prime example of how going into debt can actually do you a favor.
The key is understanding the basic concept of good versus bad debt. Good debt is an investment that will return you with an income, while bad debt is typically something that is going to depreciate and end up costing more money over the long term. Keep these principles in mind when you're considering buying a property, or even new furniture. They'll help keep everything in the proper perspective.
Photo Credits: 1
Originally posted 2008-09-16 05:13:28. Republished by Blog Post Promoter
Related Posts -
Introduction to Mortgages pt 1 of 5 The housing market is an interesting beast, because it comes and goes, rises and falls, allows some people to flourish and brings others to ruins. If you want to understand how the housing market works, you should begin with an introduction to home mortgages. This is part one in a...... -
Debt Consolidation Tips If you're swimming in a sea of debt and trying to figure out how to keep your head above the water, one of the easiest ways is to consolidate. However, the actual process of consolidation can be confusing and it is all too easy to make mistakes that will end...... -
Travesty of the Debt Snowball aka Hello World I have a passion for personal finance... I can't get enough... I read about it, I think about it, and now I write about it. Why does the Internet need another personal finance blog? All personal finance blogs that I have read vilify debt, demonize it even... While such a stance is...... -
What You Need to Know Before Going Into Debt Let’s face it, if you want to get ahead in today’s world, you’re going to need to go into debt, at least a little. The key is managing your debt properly and avoiding common traps. Not all debt is bad, even if we have been trained to think that it...... -
How to Find Financial Stability in Unstable Markets Right now, the only news about the economy seems to be bad news, and it may take a few months if not years to improve. The dollar is weak, oil prices are still up and the cost of living has skyrocketed this year. These are unstable times, but that doesn’t......
Related Websites -
Pay down the mortgage, or invest? Scott Burns on MSN Money debates mortgage paydown and investment in his article Dilemma: Should you pay down or build up? The subtitle of the article states that "[s]ometimes itâs smarter to use extra cash to pay off your mortgage; sometimes you should stoke investments. It all depends on your...... -
how do they calculate the mortgage payment with interest? if the mortgage amount is 0,000 and the interest rate is 6%. the monthly payment is around 00+ and the total interest+mortgage amount paid in 30 year is about 0,000+ which is more than double of the mortgage amount. why is that??? that means your house is worth 0,000+ which...... -
A mortgage is still debt that needs to be reduced Amy of My Debt Free Goal aims to pay off $72,900 in debt by April 2009. By her own admission and hoping to go farther than she would otherwise. Paying off that amount involves throwing over $3,000 per month, every month, at that debt for the next two years --...... -
Which debt to reduce first? I saw a heartening post over in the SavingAdvice.com forums this week. A couple has extra money that they want either to put toward debt (nearly $4000/month in two mortgages for their Los Angeles home) or put in savings. This kind of thinking seems very uncommon. The skinny on their...... -
How to Get a Higher Appraisal For Your Home If you’re trying to sell your home in today’s market, you may be faced with a lowball appraisal that could threaten a loan. Even the nicest houses are being downgraded, and if your area has had a lot of foreclosures, getting a good appraisal may be next to impossible. However,......
- Coffee Presses Coffee & Espresso Making Small Kitchen Appliances Kitchen, Dining & Bar Home Store
- Living Room Furniture, Large Appliances Furniture, Appliances Fans Collectibles
- Furniture, Large Appliances Furniture, Appliances Fans Collectibles
- Coffee & Espresso Making Small Kitchen Appliances Kitchen, Dining & Bar Home Store
- Coffee Grinders Coffee & Espresso Making Small Kitchen Appliances Kitchen, Dining & Bar Home Store
Categories:
Debt, Personal Finance, bad debt, good debt
Tags:


0 comments ↓
There are no comments yet...Kick things off by filling out the form below.
Leave a Comment