How to differentiate a debt consolidation

Surely more than once you have thought that you are very indebted, to the extent of saying that you are what follows the debt: drugged. But is it really like that? Something that surely you had not put to think is that there are different types of debt and each one has its own characteristics.

It sounds weird, does not it? How will there be good debt and bad debt? The simple fact of listening to the word to many makes us the creeps. When things get worse, we even begin to say that we are in a broken bank, but it does not have to be that way. Think for a moment what you have acquired with your debts.

Surely part of your debt is destined to the payment of an asset that is profitable, for example, a house but, if your debt is rather destined to the payment of things that are not essential then why do you keep paying it? Of course, in order to continue, it would be important for us to define what the debt is about.

The debt is nothing else than the obligation that the person who borrows something contracts and, according to the agreed condition, he must reimburse the person who lent it.

In this case, the one that requested is the debtor while the one that lent is the creditor. The debt itself is not the amount borrowed or what is owed, but in the end, both elements make up our “debt”.

For example, in a bank loan the one who asks for the money is the debtor while the bank that loans are the creditor, the amount is the amount of the loan or the capital, the term and the interest rate are the conditions of the loan, and the debt is nothing more than returning the capital within the agreed term and with the interest rate fixed.

Note: the amount owed is no longer the amount initially requested but the sum of the requested capital plus the interest that corresponds. So, although it sounds crude, if you have asked for a loan or had a credit card you have acquired a commitment that implies a debt with you.

But, suppose everything is in order. You pay your bills on time, and your debt level is healthy and optimal. If so, you have nothing to worry about, but you would be surprised to know how many people there are whose main goal is to end their debts or at least not to borrow more.

It is more: there are people who hire another debt to get rid of one or other that put lower quotas and much longer terms but, unknowingly, with more interests.

Thus, credit has become the way we acquire most of our assets, but how can we know if this is completely healthy?

Throughout the following article, we will propose a list of those things that can be considered as a good debt and a bad debt. In reality, none is bad in itself, but it is true that there are some that can lead to hundreds of problems if you do not commit to liquidate.

Bad debt

One of the great advantages of credit is that they allow the acquisition of products that would be very difficult to pay in one fell swoop, for example, a refrigerator or a washing machine. However, it is very easy to fall into debt at any moment when we begin to purchase products with our credit card.

The temptation is present everywhere: rebates here and there, months without interest in the purchase of products that you do not need and superfluous expenses that ultimately end up beating our ability to pay. The bad debt is nothing other than the one that we paid off because after all there is nowhere to recover it.

Generally, this debt finances pure consumption and many analysts indicate it as the debt of poor people, those who generally try to finance a lifestyle that does not belong to them because they buy only the appearance of wealth.

In addition, this debt is ranked as the most expensive in the world because once consummated, it jeopardizes the income of the future. To make matters worse, the bad debt is one that does not produce economic benefits for you but only loss.

The answer is obvious: the bank is getting rich with what you pay interest and although that is part of the business, just because you wanted to have something fast now you live paying a debt that you created yourself.

Another characteristic of bad debts is that you need a large amount of money to be able to cancel them. In this way, bad debt includes things that we do not need or that we should not allow at some point.

For example, suppose you see a 60-inch TV on sale for months. Your current TV works well and is a little smaller do you take the new offer?

If your answer was yes, it is most likely that you are one of those people who like to acquire “bad debt”. Later we will see some keys to avoid this type of problem, but for now, let’s review what a good debt is about.

Good debt

Now that you know that you buy things without control or without care, you probably feel limited and think about what your money is for if in the end, you can not spend it on whatever you want.

The good news is that there is “good debt”. Imagine: if in general terms it makes sense to get into debt for the acquisition of goods and services, how to know what is worth it?

The important thing is to find out what we are going to get in exchange for the debt, and it is not just a television. A good debt increases its value over time so that in the future the acquired good is worth more than the price it had initially, for example, a property.

In addition, good debt can generate income or reduce expenses for the concept of amounts that exceed the costs of the debt. What do we mean?

There are hundreds of things that can be bought and which we can take advantage of, such as a car, a house or apartment, the education of our children or the opening of a business.

Good debts are paid on their own, they are investment calls and they provide money through the impulse of other companies. For example, if you buy an apartment and put it on rent you can obtain resources that can help you liquidate the bank’s mortgage, and also, give you a significant profit.

To make matters worse, the good debt benefits the two contracting parties: the bank receives its interest and the person who acquired the debt “leverages” to grow its capital. So, now that you know what debt consolidation services are about, why not start using it to your advantage?

Remember to always settle your commitments on time, and if you have a business in mind, consider the option of acquiring a loan so you can start it at the same time that the debt is paid alone.