smart spending

Video: Wise or foolish debt?

 

Anchor Intro: Depending on the situation, taking on debt can be either wise or foolish. Do you know the difference? These tips will help you decide.

Paying of the Balance: Credit cards are a necessary evil. You need to establish credit in order to have a credit history, but all too many times credit card debt turns into a monster you can't control. The question is not whether you should open and use a credit card, it's whether you can pay it off, in full, every month. Many people will use their credit card for everything – earning air miles or points for free travel, hotel discounts or cash-back rewards, then pay off the balance at the end of the month. If you're not disciplined enough to do this – then you will suffer the consequences of foolish debt.

Covering loans with credit card debt: An education is invaluable and student loans have long been considered wise debt. However, if you're using your student loan money to pay off credit card debt, you're just stealing from Peter to pay Paul ... in other words shifting one debt to another at a higher rate and prolonging repayment. That's a foolish debt move.

Floating: If you can't afford to buy something until your next paycheck, floating the purchase on your credit card is an option. Float is the grace period between making a credit card purchase and paying your bill in full to avoid interest charges. Again, this can be a wise choice IF you pay that balance off at the end of the month ... otherwise, foolish.

Cost of not borrowing: Borrowing money is unavoidable and can sometimes keep you from losing more money ... especially if the purchase is for a necessity, like a car. If your car is unsafe, breaks down and keeps costing you time and money, taking out a loan to buy a safe, reliable car is actually a wise debt as long as you buy something affordable and within your means.

Tag: Nobody wants to have debt. However, if you have to have some debt, make sure it has the lowest possible rates and fees, have a plan for paying if off and make sure it improves your quality of life, not hinders your financial growth.

 

 

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