Bad Debts - Avoid These Bad Debts
Bad debts can many times be avoided by simply thinking things out before you dive in.
Bad debts result when you eventually begin paying more for something than it is worth. Let's look at an example.
You come across an ad that defers payments until a later date. That can be a good thing if you pay by that date. Many advertisements will defer payments for a year but, the day after you get hit by a high interest rate. As a result, you end up paying a lot more for the product than it’s worth.
The creditor makes it sound good that you can pay in a year for no extra fee, but they are really hoping that you will take longer to pay so they can earn interest from you.
Sometimes they inflate their prices so that they make ever more money. So price check beforehand and, if you do buy a product using this no payment due for a year, make regular monthly payments so you can pay this off on time.
I got my big screen t.v. this way. I had 3 years no interest and made regular payments during that time and had it paid off in 30 months.
Credit Card Cash Advances
Cash advances from credit cards are without a doubt a bad debt. If you borrow cash from your credit card, you’ll pay higher interest rates. It might be convenient to borrow cash from your credit card but you might really be borrowing double when you factor in the interest rate because you don’t pay for it right away and, if you make the minimum monthly payment, you pay an awful lot to borrow that money.
Many credit card companies also tack these transactions onto the end of your statement and when you make payments, they go first towards paying the lower interest loan.
A car loan is usually a necessity but can also be a bad debt if you are not careful. We all know a car depreciates the moment you drive it off the lot. Buying a car that is a year or 2 old is a good way to offset that depreciation.
Of course, shopping around for the best payment terms and interest rates is also important.
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