Good debt, bad debt

Chronicle (Zimbabwe) - - Business Chronicle -

con­se­quences of your ac­tions. The devil is al­ways in the smaller prints. Read and com­pre­hend be­fore ap­pend­ing your sig­na­ture. Where pos­si­ble let it be ex­plained to you in a lan­guage you are well com­fort­able and con­ver­sant in.

Fail­ure to set­tle debts can have se­ri­ous ram­i­fi­ca­tions in your fu­ture debt seek­ing ad­ven­tures. It might cost you car loans or mort­gage loans be­cause your pre­vi­ous credit his­tory will have been bad thus had you black-listed. It is ad­vis­able to be in good stand­ing or­der by servicing your debts. Do you know a smaller debt is bet­ter than not hav­ing debt at all when it comes to credit wor­thi­ness?

Good debt Not all debts are bad. Choose the ones worth stress­ing over like a mort­gage. Take good debt only, if not sure then con­sult ex­perts who are in the know.With good debt you lever­age to ac­cel­er­ate wealth build­ing at op­ti­mum cost lev­els. It’s af­ford­able and leaves you bet­ter off fi­nan­cially. Good debts in­clude mort­gages, busi­ness debt, af­ford­able car loan and stu­dent loans.

Bad debt Debt you can’t af­ford to pay. The re­pay­ments drain your wealth and nor­mally based on im­pul­sive de­ci­sion mak­ing. These leave you worse off fi­nan­cially and do not add any eco­nomic value to your fi­nan­cial port­fo­lio.

Debt to In­come Ra­tio Math­e­mat­i­cally this is all your monthly debts pay­ments di­vided by your gross in­come(s). It de­notes your abil­ity to man­age (monthly) your re­pay­ments to the money bor­rowed. It’s your abil­ity to man­age pay­ing off debts you have. The rec­om­mended ra­tio is a max­i­mum thresh­old of 43 per­cent mean­ing for ev­ery dol­lar you earn you would only have 57 cents to spare af­ter all your debts have been paid. Fifty seven cents be­comes your ex­cess in­come af­ter debts have been set­tled. As at cur­rent eco­nomic lev­els and so­cio eco­nomic sit­u­a­tion I do rec­om­mend a ra­tio of un­der 20 per­cent as there are some many un­cer­tain­ties and emer­gen­cies. Pay­ing off debts Fig­ure out your spend­ing pat­terns for un­nec­es­sary ex­pen­di­tures. In set­tling debts start off by set­tling bad debts and ag­gres­sively work to­wards set­tling all debts no mat­ter how hard it could be. Get out of debt fast The need to stop ac­cu­mu­lat­ing more debt (re­gard­less it be­ing good/bad) is crit­i­cal in pur­suit of fi­nan­cial free­dom. Then spend less than what you are mak­ing. No over ex­pen­di­ture Fi­nally cul­ti­vate the cul­ture of sav­ings and with those

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