Studies show an average American household has debt worth $120,000. Suppose, you make only minimum payment on the principal amount, it would take you many years to become debt free and you would also end up paying more interest. This sounds a bit discouraging but it is the reality. When you are neck-deep in debt, it is better to find a solution to clear most of your bad debts and lead a financially healthy life.
There are two types of debts – bad debts and good debts. A debt is a good debt, when you apply for a student loan to finance your higher education with the hope of getting a better job opportunity. Here the student loan is considered as an investment than a debt. Examples of a good debt are the home loan and the mortgage loan.
A credit card debt is a bad debt. The reason is when you use plastic money you do not feel the money slipping through your fingers and you have the tendency to splurge. This can lead to an unhealthy financial condition if you do not clear the entire amount at the end of each month. If you pay only the minimum amount due, the debt is going to accumulate and the credit limit on your credit card comes down. Another example of a bad debt is taking a loan to pay for a vacation that you cannot afford.
Bad Debt Repairs
If you are badly in debt, get a debt advice of a debt counselor. He would be in a position to help you make a financial plan to repair your bad debt. Debt counseling would help you in deciding whether you want to apply for debt consolidation or declare bankruptcy.