Good Debt vs Bad Debt – What Does It Mean For Salem OR Home Buyers

Posted By David Whitton @ Feb 4th 2012 1:33pm In: Financing and Refinancing Your Salem Home

Given the lengthy and heated debate going on about the country’s debt, this may well be a good time to think about your personal debt philosophy and/or situation.   While it’s almost impossible to live debt-free, it is important that we analyze and manage our loans; we all have seen in recent years the economic repercussions of taking on too much debt, both nationally and individually.  Experts say that ideally your total monthly long-term debt payments should not exceed 36% of your gross monthly income, but the real challenge is to judge which debt makes sense and which does not.  Economic advisors suggest that you first recognize that some of your obligations are considered good debts, whereas some might fall into the category of bad debts. 

debtGood debts are those which can be looked at as investments and those which will contribute to your overall financial health.  The best example of good debt has been for many years the purchase of a Salem OR home and is still considered as such by many.  Another good debt would include a student loan to finance higher education.   Financing a car is also perceived as good debt provided that you make as large a down payment as you can reasonably afford and that you intend to keep the vehicle as long as you are paying for it. Generally speaking, good debt includes the purchase of items which you could not afford without wiping out your cash reserves or liquidating your investments.

On the other hand, bad debt occurs when you borrow to purchase a consumable item without fully comprehending the influence of that purchase on your financial well-being.  Excessive credit card use is an excellent example of bad debt, especially given the high interest rates charged.  One obvious flaw in the credit card system is that it encourages users to purchase things they can’t really afford, a posh vacation or the addition of a pool for their Salem OR home, e.g., without having to pay for them at the time.  It goes without saying that payday loans and paying pawn shop interest are very poor—and costly—practices which should be avoided entirely.

How to manage your debt?  You can begin by figuring out your credit utilization or your debt-to-credit ratio, which tells you how much you have borrowed of the total amount available to you.  The lower the percentage, the better for your credit rating.  Creating a plan to pay off your bad debts, especially those with high interest rates, is another important step in achieving financial stability.  Many financial counselors urge borrowers to pay off credit cards and car loans before considering taking on student debt or a mortgage for a Salem OR home.  Another strong caveat is not to pay off one loan with another, such as using a home equity loan to repay bad debt.  The best practice is to use cash to pay off debt.  One way to increase your available cash is to analyze your spending pattern and carefully monitor unnecessary expenses.  Other suggestions for managing debt include taking steps to lower household bills, refinancing a mortgage for a lower interest rate, and requesting a reduced rate of interest from credit card companies.

Search all Salem Oregon homes for sale.

Dewey and Dave Whitton are Salem’s Relocation Experts and understand that moving is both an exciting and stressful process. That’s why they do everything in their power not only to help you find the perfect home but also make you feel right at home.

Dewey and Dave assist buyers looking for Salem Oregon real estate for sale and aggressively market Salem Oregon homes for sale. Be sure to Download your free guide to Salem and learn everything you need to know about making Salem, Oregon, your new hometown.

Comments (0)

Comments have been closed for this post.
Please contact us if you have any questions or comments.

Create Profile   Lost Password?

David & Dewey Whitton
The Salem Real Estate Group
6444 Fairway Avenue SE
Salem, Oregon 93706

Direct Line: 503-949-3623
Fax: 888-299-8055
Email Us