Going into Debt – Is it Good or Bad‎

Debt is a common problem in our fast paced world today. You purchase an item and pay for it later, spend without any consideration to how much you are spending, open credit accounts with the intention of building credit and keep our economic world turning, right? Wrong! Going into debt costs everyone in the long run. Consider this; your neighbor borrows $22,000 to purchase a new car. Their payments are more than they can afford and they end up defaulting on the loan. The loan company therefore must raise their interest rates in order to recover from hundreds of customers defaulting which in turn costs every new customer they deal with.

Let us examine some of the pros and cons of going into debt. On the pro side we have the fact that you can get something you really wanted quickly and pay for it later, build your credit score for future large purchases, maintain a certain lifestyle and join the ranks of the plastic world. The cons tell us that sometimes our spending habits get us into trouble and we find it hard to get out of debt, the interest rates we pay on credit purchases ends up costing us more than double for one item, we can maintain our lifestyle by saving for purchases and more people end up filing bankruptcy than paying their debts off.

One way of keeping from going into debt is to save for purchases. Buying small ticket items is cheaper when you save for a purchase than if you purchased on credit. If you simply must purchase on credit, make sure you pay the balance down quickly. This means not making another purchase until this one is paid in full. This eliminates multiple interest charges and addition fees that credit companies attach to your credit account each month. Paying more than the minimum payment will decrease the interest paid on the purchase.

This doesn’t mean that you should never use credit though. In some instances it is simply impossible to keep from using it when making a purchase such as when buying a home. This is an advantageous credit situation where your credit is not only making a purchase for your future but as you begin to pay on the principle of the loan, you begin to build equity which can be borrowed against without huge interest rates. One can truly say that debt is both good and bad for you and the economy.