Debt

How to Avoid Unnecessary Debt

Just about everyone has debt problems at some point in their lives. Americans are continually being tempted into more and more credit. Nearly everyday we get offers for yet another credit card in the mail. Major purchases usually come with teasers like "no payments or interest for x number of months or years". We can charge everything from our furniture to our toothpaste and it's always presented as so easy. No one says much about how much all this credit is going to cost us. Before we know it, we're up to our eyebrows and feel like we owe everyone in the world.

Setting Limits

Some of our larger purchases require that we go into debt. Examples would be our homes, cars, businesses, and other large and necessary items. We can easily get into trouble though when we live beyond our means. If we're buying a home, it's important to figure out what we can afford to pay, including taxes and insurance, and stay within our reasonable limit. The same holds true for cars. It's so easy to justify buying a brand new model loaded with options, when all we really need is transportation. It's pretty much up to us to set our limits, as creditors will only go so far. They want us to owe as much money as possible without going bankrupt.

Interest Fees

That brings us to the subject of interest, the fee we pay for the pleasure of using someone else's money. In recent years interest rates have been extremely low, tempting us to buy even more. Home ownership has jumped by leaps and bounds. Since interest rates fluctuate, unless a person has a fixed rate mortgage, they can end up in trouble as the years roll by. Credit card companies tend to play very loose with interest. They'll make it easy for you to get a VISA or MasterCard at very low interest that lasts for a designated period. Once that time passes you could end up paying extremely high rates for all that debt you've incurred.

Credit Score

What seems backward about the system is that those with the least money end up paying the most in interest. That's because the amount of interest you pay is based on your overall credit score. If your debt is out of balance with your income, your score will be low.