Standing Thought

Debt Management

A Debt Management Solution that Makes Sense

Article by NaQuan L Gray

Mastering debt management is a necessary aspect of making your

money work for you.A good place to start on your road to Financial

Freedom is learning debt management and to begin you have to know the

difference between good debt and bad debt. First let me give you some

definitions:

Good Debt: Any debt where the cost of the debt will be surpassed

by the profits that are made by whatever it is that you took on the

debt to buy is good debt.

Bad Debt: Any debt where the cost of the debt will amount to

more than the profits that will be made by whatever it is that you

took on the debt to buy is bad debt.

It's that simple. When you are looking into taking on debt do

not just be mesmerized by whatever it is that caught your eye. Debt

management mandates that you have to run the numbers. Yes, you can

finance that car and drive it off of the lot right now, but is it

worth it to pay ,000 for a ,000 car? Even if you have to use

your last ,000 as a down payment? If your answer is yes then there

is no help for you. You are incapable of debt management. Stop

reading now. For those of you with the common sense to say "No" to

the above question I am going to give you a jewel that was given to

me by some of the best to ever do it. This jewel was dropped on me

when I was sixteen years old. I was told that debt management is

essential to accumulating wealth and that anybody who knows anything

about debt management would never even consider putting ,000 down

on a 0,000 dollar car. That would be counterproductive. A true

hustler would use a ,000 dollar car to make 0,000. That is debt

management. I was told that the key to debt management is not to

avoid debt entirely. The key to debt management is learning how to

use debt to your advantage. I have never forgotten this piece of

wisdom and it is a jewel that can be applied to every aspect of our

financial decision making process. The difference between good debt

and bad debt is that good debt is going to pay for itself and put

more money in your pocket while bad debt is money owed for an

unnecessary item that you couldn't pay for. Control yourselves people.

Now it is time for another definition:

Necessary Debt: Any debt that is essential to either the running

of your business or to taking care of your business is necessary debt.

Examples of necessary debt include things like a car, a house,

credit cards, student loans, and any other recurring business related

expenses that you may have. The important thing to understand about

necessary debt is that it can either be good debt or bad debt

depending on the circumstances. This is important. Due to the fact

that I know that most financial advisors put the items that I listed

in either the good debt or bad debt categories, I am going to explain

why I call the above expenditures necessary debt.

The Mortgage: The American Dream has turned into the American

Nightmare. Unless you have been living under a rock you know that

this once all-american investment is now under heavy scrutiny. People

have been led to believe that their house is the most expensive

purchase that they will ever make in their life. This is not always

true. In some instances it will be your mortgage loan that is the

most expensive purchase that you will ever make in your life. It is

not uncommon to see the cost of getting the loan (the interest)

amount to more than the principle of the loan itself. You end up

paying the bank 0,000 to loan you 0,000. So if you hold onto

the house for the life of the loan you end up paying 0,000 for a

0,000 dollar house. I know what you are thinking, that the value

of the house will appreciate over time thereby offsetting the

interest charges on the loan. That is what you were thinking right?

Right? Well that would depend on the property that you are getting,

but judging by the millions of Americans who either lost their

homes to foreclosure or are underwater on their mortgages I think its

safe to say that the appreciation of a property can not make up for a

bad deal. If you can get a good deal on the house in that you get it

at a price where your money is made when you buy, the mortgage that

you take out on that house can be considered good debt. When I say

that your money is made when you buy what I am saying is that you get

the property at such a low price that even if the value doesn't

appreciate you would still turn a profit if you were to sell. This is

the only time that a mortgage can be considered good debt. If you

want a house just because you are still holding on to a dream that

America woke up from many moons ago then that is your decision to

make. Just understand that if you do not get the type of deal that I

described above then you are taking on a bad debt. This is considered

a necessary debt because you have to spend some type of money on a

roof over your head, however you can always lease or rent until you

can find a deal that is worth locking yourself into for the next 30

years.

The car loan: This is definitely a problem area. The car loan is

the most abused debt there is. This is very simple. If you do not

have Benz money do not go out and get a co-signer to help you get

into a car that you cannot afford. Do not go to the shady dealership

around the corner where you know that if you go in there will 00

that they will get you into whatever car you want regardless of

income. The end result is usually repossession in which case you will

be coming back to this website to read up on restoring your Credit.

Another common result of this is that since you only had a small

percentage of the asking price to put down at the time of the

purchase that you are now stuck with a large car note. When you add

this with the full coverage car insurance that you have to pay every

month (full coverage is mandatory on a financed vehicle) and whatever

other bills that you have to pay for you are usually left with no

money and you officially become that person in the 7 series who

rarely takes it out of the garage because you have no gas money.

Trust me that is not a good look. The car loan is a necessary

debt because you have to get from point a to point b. That is a

given, but it does not mean that you have to spend all of your money

to do it. I' m talking to the people that go out and buy ,000

dollar cars because they wanted something "reliable". That is the

reason that most people give for why they went out and spent too much

money on a car. In case you didn't know Mercedez is not the only

manufacturer that makes quality cars. Sorry to burst your bubble.

Just because you need a car does not mean that you have to spend

foolishly on one. My formula to determine whether or not your car

loan can be considered good debt is simple. I call it the 5% rule.

Your monthly car payment should not be more than 5% of your monthly

income. For example if you make ,000 a year, which comes out to

approx. 66 a month, then your car payment should be no more than

8.33 a month. If your car payment is 5% or less than your income

then you have made a savvy investment and that car loan is a good

debt. If your car payment is any more than that then you went above

your means and you have taken on bad debt.

Credit cards: Out of the three examples I am giving you this is

the easiest for me to explain and it should be the easiest for you to

understand. The only time you should use a credit card is when you do

not have the money to buy whatever it is that you need. I don't just

mean when you don't have the money in your pocket. I am saying that

if you have the money anywhere you should go get it and use it.

Credit card debt is some of the most expensive debt in the universe.

I don't know about you but I am in the business of making money, not

giving it away. Every time you give a company to spend that is

exactly what you are doing. The only justification for using a

credit card is that the money that you are going to make off of

whatever it is that you are buying is going to be enough to have made

a decent profit after making back the cost of the item itself and the

extortionary amount of interest that you were charged to make the

purchase with the credit card. The only exception to this rule is if

you are building credit (see the credit section for details). I

consider credit card debt to be a necessary debt because when

you are trying to run a business or when you are trying to take care

of business there are gonna be times where you will need access to

more cash than you have on hand. At these times a credit card can be

invaluable. If used for this purpose credit card debt is good debt. I

don't think I need to tell you that a shopping spree on credit at

Saks is bad. Three words: The Great Recession. If you haven't learned

that too much leverage is potentially fatal by now then you may never

learn. Use it wisely.

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Debt Management question by Amber A: What chance has a 40 years polish man with broken english no house or money? to find a gi on a debt management?
What chance has a 40 years polish man who looks even 55 speaking broken english with no house, money on a debt management and house repossessing process to find a girlfriend in UK?

Debt Management best answer:

Answer by La Griffonne
He need to straighten up his life before dragging someone else in his mess.
He already have a lot of problems without adding the stress of a relationship to the top. And a relationship developing in this climate don't have much chances for success.

Once he's back on track, he can start going out, meet new people, join a club or something. I'm sure a woman somewhere will find his accent charming. An who care about age.

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