Friday, April 22, 2011, AM | 1 Comment
Debt is not always bad if you are careful and are always in control of your debt. As long as you use debt for your financial livelihood and eventually return it to its original owner, then you would lead a successful financial life. Whether it’s credit card debt, your mortgage or student loan, be always in control to not borrow more than you actually need.
Some folks turn debt into their livelihood. Others just can’t handle it and it turns into a curse and a nightmare. Debt has always played a big part in the national economy and also in our personal lives. Some say there is good debt and then there is bad debt. If you are not careful, too much good debt can turn into bad debt and can sink your financial life just as bad debt does.
The good debt is categorized into mortgage, student and car loans, and borrowing to start a business. Any other debt that cannot possibly give you a return down the road is considered bad debt. By the way, in the event of bankruptcy, student loans are almost never wiped out. That means potentially it can be a huge debt chain hanging around your neck for many years to come.
Many folks incorrectly assume that a bank would not lend them more mortgage loan than they could comfortably repay. Lenders know that you will somehow come up with the monthly installment even if you have to work two or three jobs. That is one reason why there have been so many millions foreclosures because the lenders and borrowers just got plain greedy and the latter did not think for a minute to live within their means.
The fact of the matter is you need to know your own debt limits based on your individual situation and goals in your financial life. Many folks who went under did not give a damn what they were getting themselves into.
The idea of debt management is foreign to many folks. Either they can’t manage it or they habitually just do not care. Even if you can’t eliminate debt in your life, at least you must try to manage it for your own good and livelihood.
Super rich people can have the same problem. Ed McMahon (Johnny Carson sidekick on the Tonight show) at times was reported to make more than $5 million a year. According to his own statements on TV talk shows and book that he wrote, his expenses were far more than his income. Needless to say, he was unable to manage his finances and got into debt deeper and deeper.
Instead of managing debt and live a happy life, many of us just keep borrowing. Consequently, comparing to other nations, Americans just keep piling up debt.
According to media reports, in the 20 years since 1990,
- The amount of our credit card debt and home equity loan has tripled.
- The debt part has increased to 20% of our disposable income.
- The average home equity has decreased from 67% to 55%.
Some people do drugs. Occasionally they overdose. Some do debt and occasionally they overdose. Bankruptcy filings for individuals set new records in 2001, 2002 and 2003. Foreclosures reached their highest level in 2003 and those were relatively good times. It was before the current recession.
Debt is not your enemy, you are
People with serious debt problems may try to do too much too fast and then as fast they give up in total despair. In their effort to pay off debt, some people just forget other important goals such as saving for retirement, a home, or college.
If you are having serious debt problems, it’s good to have proper information, advice and a clear-cut assessment of your financial situation so that you can make the best choices for yourself and your family. Short-term fixes and inspirational slogans might help, but you should not choose them at the expense of your long-term financial health.
Even if you are not in a financial crisis, it will help you tremendously to view debt as a financial tool that can turn your life around and can help you in your livelihood. Use debt as essential part of your finances to build wealth, reaching your goals and live a happier life.
How to not get into debt
In any case, if you are in debt and cannot get out of it while you are still alive, this blog and others have many articles about how to get out of debt. If you cannot manage your debt to your advantage and your benefit, then my suggestion is to avoid it completely. The mantra of this blog can be summed up in two statements:
- You always save when you save before you spend.
- You seldom save when you spend before you save.
In a Nutshell
It seems that most people have been unable to manage their debt. They just keep borrowing without thinking for a minute that they have to return the money to its original owner. You ought to find ways to manage your debt as an asset.