Bad Debt
May 2nd, 2006 | by Molly's Brother |Although the term “debt” is widely used, there are–in my opinion–generally four kinds of debt: The Good, The Bad, The Ugly, and The Worst.
Good Debt Borrowing money for home, school and cars is considered good debt. Although, quite honestly, I would contend that borrowing for a home is the only kind of good debt to have. A normal run-of-the-mill car should never be considered an investment since it depreciates 20% the minute you drive it off the car lot. The debate can also be made as to whether school loans can be considered good debt, as well. But I’ll explore these issues at a later date.
Bad Debt It’s clear that credit cards are the fastest way to fall into debt. If you can not afford to pay off your entire bill within a month or two, then you can’t afford the items you want to buy. Too many Americans are getting themselves in way over their heads because of vacations and food and nights out and clothes that are charged away. They then spend the next few years trying to eliminate this debt. (Fact: More than a third–36%–of those who owe more than $10,000 on their credit cards have household incomes under $50,000. Wait. It gets worse: 13% who owe that much have incomes under $30,000. Source: msnmoney.com)
Ugly Debt Stay away from charge cards that are offered at department stores. These cards–across the board–have insulting interest rates. So even if the clerk offers you a 10% discount on each item you bought that day if you open a store card, continue to refuse the offer since the interest rates for the cards hover around 20%. (Wasn’t worth that 10% off, was it?)
The Worst Debt And really stay away from payday loan offers. This is equivalent to predatory lending. We see these commercials on television and too often these check cashing and payday loan institutions set up shop in the poorest areas of town. With APR of 400% to 1000% the “services” these businesses offer are unjust and immoral, keeping those with the least financial cushion in a state of perpetual debt. It’s incredibly unethical. Fortunately, many of us have known about the pitfalls of entering into an “emergency” loan with these sharks. However, there are too many people who haven’t been able to avoid this predatory lending practice.
