A Debt of Gratitude – Why Having a Mortgage is a Good Thing

Written by Posted On Thursday, 25 May 2017 03:51
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Do you look at your credit card bills every month and feel dismayed by the sheer pile of money that goes to covering your debt? Do you find yourself fantasizing about winning the lottery or being awarded a huge settlement in a legal case that would allow you to wipe out all your debt with one pass?

Sometimes if may feel like a tar pit trap that you’ll never be free of, but not all debt is bad. When potential lenders look at your record to see what accounts you have on your credit report, they don’t consider all debt the same. And certainly, not all of it bad.

If you are formulating a strategy to get out of debt, it is a good idea to understand which debts are detrimental to your history and which are not.

What Kind of Debt is Good?

Does some of your debt count as an investment? If you took the debt in order to purchase something that will increase in value, this may count as a good debt. Debts that contribute to your general financial wellbeing are not just good, they are a wise investment.

One example might be a student loan to finance a university education. A college degree makes you more competitive for higher paying jobs, meaning that you’ll make more wealth over the span of your life.

Another example might be a mortgage. Since houses usually go up in value, the mortgage loan you took to pay for it is an investment.

Additionally, mortgage interest rates are usually quite low when compared to credit cards, so the amount being paid to service the debt is relatively low. On the other hand, the amounts financed are huge, so the absolute amount of money being paid for debt service is large as well.

What Kind of Debt is Bad?

Debt used to finance consumables is bad debt. You pay for the cost of the item, which is used and then gone, plus the interest, meaning you spent more than you should have in the first place. Credit cards are often used to purchase these kinds of items like food and clothing. If you use a card for such purchases, it should be to earn reward points and you should pay off the balance by the end of the month to avoid interest.

Making Wise Choices

Good debt comes through making wise choices about your future, not just for the purpose of having good debt. For instance, you might embark upon a course of higher learning to get an MBA in sustainable business from Haas Business School at Berkeley. An MBA in a growing field from a prestigious university is certainly a good investment in yourself and your earning potential. Applying for a student loan in this case is a justifiable reason for adding to your debt.

When strategizing about paying off your debt, you should make paying off the bad debts first a priority. They’re costing you more than your good debts. Try to pay off credit cards and car loans before student loans and mortgages.

Perhaps you’re considering converting your bad debt to good debt by taking out a second mortgage and using it to pay off high interest credit cards. It may take longer to pay off your mortgage and the higher mortgage payments add to your burden, but the advantage is complete elimination of usurious credit card debt. This can enhance your credit score as well.

Even good debt isn’t truly good; it’s just not as bad as bad debt. Both can harm your financial health.

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Narendra Sharma

Naren is an interior designer and real estate expert. I’m grateful everyday to my wonderful clients who have entrusted me with their homes.

www.amarillorealestateguide.com/

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