Good debt, bad debt
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