Debt Cash Flow Money Management Personal Finance Financial Matters Finances

There is smart debt and dumb debt. Most debt is the latter. It can be used as a tool, but should not be used as an excuse because you cannot afford to pay for something and can’t wait for it. In the end you will end up paying significantly more in interest and it is doubly true with credit cards. As we all know credit card companies charge interest, same with most retail store gift cards and if you get something at lease to own stores it’s pretty much the same thing.

The only two types of debt that can be considered smart debt are mortgage payments toward a house and maybe a college education. But even at that, there are things you can do to avoid debt toward the latter and keep the money in your pocket. So why do people go so far into debt? Several reasons. Here is the main reason:

Laziness and keeping up with the Jones’

Some people just don’t want to save up to buy things that they “need” or have trouble recognizing the difference between needs and wants. Others have to have the latest of everything but do not have the income to pay for everything that they really want in life, cash. So instead they rack up the debt so that way they can always impress their friends. It may take time but eventually it can, and probably will catch up with you and you will owe thousands of dollars in debt.

It is very widely publicized that professional athletes who have never even been wealthy end up making millions of dollars end up going broke because they don’t know how to handle their wealth. Basic money management skills should keep you from having to use a credit card or go into other types of debt.

Unless you’re a millionaire and can afford to pay cash for things like houses, it is a good idea to have some form of credit. The reason is because when you do need to apply for a mortgage when you buy a home or you have no choice but to go into car debt then at that point your credit score will matter and what ultimately determines your credit score is how much debt you have taken on and did you pay it all back in a reasonable amount of time. Constantly closing and opening accounts can also cause problems with your credit so that is also a no no.

The best way to handle debt is to keep your debt down to the house and if you absolutely must, the car. Understand what you need and what you want and come up with a budget to balance both. If something you want doesn’t fit in your budget then learn to live without until you can afford it. That is how one becomes rich.