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Managing Debt - Good And Bad Debt

A lot of people assume that if you have a lot of debt on your personal books, you automatically have bad credit. The truth is often quite different. In fact, across America there are many people and families who carry high amounts of debt, yet have superb credit ratings simply because they pay their creditors the balances required. So in many cases, what you have are people who have high debt burdens, but manage it all well.

But, to be sure, high amounts of debt can become a problem, and certainly does in cases where a job loss or medical problem occurs within the family. This can financially devastate even a person with superb debt management practices.

Some Debt Management Tips

A problem with maintaining high debt for many people is that they find themselves paying the minimum payment on their credit cards, while noticing that the actual balance never seems to come down. This is a very real problem.

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In fact, the minimum payment schedule makes it almost impossible to reduce overall debt, simply because the "minimum payment" is structured to do very little else except pay the interest accrued. It is structured not to help you, but to make the credit card companies the most money possible. So, if you think it's taking you forever to pay down your credit card debt using the minimum payment plan, it probably is.

Minimum Payment Blues

When a person can only pay the minimum payment on their cards, they typically will apply for new cards in hopes to gain some debt relief. This does work sometimes, but usually only for a brief period, as the behavior which created the high balances in the first place will generally take hold. And, credit card companies simply love to accept you for more credit. In fact, they rarely look at your finances at all - as long as you're keeping up with your minimums, you're OK with them.

High Debt Hurts Most When Credit Is Needed

Looking for a house? Considering purchasing a cottage? You may want to reconsider if you have been paying only the minimum payments on your credit cards. The fact is, your "debt to income ratio" is always taken into consideration when you apply for loans. This ratio is discovered by taking the total of your monthly minimum debt payment and dividing it by your total income amount. The higher the ratio, the less likely you'll either qualify for a mortgage, or, it may be at a higher rate because of this.

Succeeding or Keeping Your Head Above Water?

There are quite a few among us who believe that they are doing well as long as they can pay their minimum payments. But in reality, this is never the case. Over the long term, high credit card debt puts you at tremendous risk for credit problems. It's a simple fact. And in the meantime, you may have trouble getting the loans you need to advance your life. So always pay down your credit cards first - and you'll benefit far into the future.

Having issues with debt? Contact us here for a free debt consultation. We may be able to provide debt help.

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