Tuesday, November 8, 2011, AM | Leave Comment
There are certain things in America that to want them is to get into debt, by default. For example, you get a job, make good money, you meet someone, you get married.
Both of you are gainfully employed and together make good money, enough that you start thinking about buying a house or maybe a condominium.
If you are like most people, you borrow money in the form of what is generally known as mortgage. You buy the dwelling and you right away get into debt. But, except for these extremely hard times that we are facing now, under normal circumstances, the value of your house should go up in the years to come and the mortgage debt starts to look good.
Mortgage is debt but it is not considered bad debt
Among real estate agents, there is a saying that you can make money in real estate if you don’t sell it. In other words, you are in it for the long haul. The same can be true for other kinds of investments. Just ask Warren Buffet.
However, mortgage is debt but it is not considered bad debt. It is good debt. There are other debts that you just cannot avoid, one of which is student loan. But this is good too. You get good education and mostly a good job should follow. These days, it is arguable whether to get into student loan debt or not because of the job situation.
There are certain other debts that are really bad, bad enough that they start stinking after a while. In the following paragraphs, we will talk about the “stinking” debt. And that’s the topic of this post. “Can you afford to be debt free? Of course, you can.”
Payday and refund loans
When you do your taxes yourself or get it done by a professional, you hear a sales pitch on radio and TV and other places. They will pay you money in advance before you get your refund from IRS. But the interest they charge is more than what credit card companies charge and you know how much they charge – more than 21%.
Instead: Waiting a few days to get your money will save you a ton over the long haul. If you absolutely have to have money, it’s better to use a credit card.
Cash advances on credit cards
There is another pitch, but this time it’s done by the credit card companies. There are so many ways they do this. They send you blank checks. You write one of those checks to someone and you start piling up all that interest and principal. Not only that, they would charge you upfront fee and a higher interest rate than other charges on your credit card.
What could be higher than their regular interest rate of 21% or 22%? How does 25% sound? You would think I am scaring you, but that’s exactly what I want to do, scare you.
Instead: Use a credit card or an ATM card. Credit card interest will not accumulate for a month or at least 3 weeks, and an ATM card is free from your bank. If you are not near your bank’s ATM, it’s better to use a renegade ATM and pay a usage fee than to use your credit card to get cash.
Gambling is defined as gambling with yourself and your family. Don’t do it. You never win. It’s always the house that gets the take. Very few people win.
Instead: You have better chances of getting good return in the stock market. Better yet, invest your money in gold or mutual funds.
Don’t get a loan to get into non-accredited schools with poor job placement records. Always look for federally subsidized debt rather than private lender loans at higher rates.
Instead: Students should find out How they can qualify for financial aid and grants.
If you ever did get into one of these traps, they try to get you by the neck or more precisely they take advantage of your needs – you need the money badly. When they come and get their money back, you wish you had waited for that refund from the IRS or used your credit card .
Do what you have to do to avoid getting into these traps. Borrow from family and friends. Otherwise, you would, forever, be haunted by that character in the so very well-known Shakespearean play.
In a Nutshell
Always remember what Gregory Peck said to David Niven in ‘The Guns of Navarone’: “Whether you like it or not, you are in it and you are in it up to your neck. There is no escape now.”