The Importance of Good Debt
Experts often say that debt can only be considered ‘good’ if it’s attached to an appreciating asset. Borrowing money to purchase a home that should rise in value over time is usually considered a smart move, for example. A business loan can also be a net positive provided the funds are used to help you become more profitable over the years.
The Worst Offenders
On the flip side, there are plenty of kinds of debt that just aren’t worth it, especially if the amount you owe is more than you can handle or your interest rate is absurdly high. If your goal is building wealth and enjoying a life free of financial stress, your best bet is avoiding debts that make getting ahead harder than it has to be. Here are some of the worst offenders:
1. Student Loans
Student loans can be a net positive for your life if you borrow as little as you can and parlay your degree into a profitable career. However, overpaying for school or borrowing a large amount without graduating can lead to the unforgiving burden of student debt. Discharging student loans in bankruptcy is nearly impossible, and the high cost of higher education forces students to borrow more than ever before. If you find yourself struggling with student loan debt, consider alternative payment plans or refinancing with a private lender.
2. Credit Card Debt
Credit card debt is another wealth killer that makes it significantly harder to get ahead in life. With average interest rates exceeding 17%, carrying credit card debt from year to year can cost you a fortune. To tackle credit card debt, stop using credit cards and create a plan to pay down your debt using methods like the debt snowball or debt avalanche. Balance transfer credit cards with 0% APR can also help if used responsibly.
3. Payday Loans
Payday loans are meant to be short-term loans that help you get to the next payday, but their high fees and interest rates trap borrowers in a cycle of debt. Avoid payday loans altogether if possible. If you’re already stuck in the payday loan cycle, consider applying for a personal loan for bad credit to pay off your payday loan and find ways to cut expenses or increase your income.
4. Car Loans
Borrowing excessively and for long loan terms for a car can be detrimental to your finances. Cars depreciate in value quickly, and trading them in for new ones perpetuates the cycle of debt. Consider buying a used car at a lower price and opting for a shorter repayment term. Once your car is paid off, keep it and avoid the burden of a new car loan.