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What Are Our Bad Debts?

Mar 2, 2008
You may have heard the terms 'good debt' or 'bad debts' but what products actually make these terms and why do we use them?

Amongst the bad debts, there are few names enumerated below that come to the forefront especially in the present day American scenario:

Credit Card Debt

Americans have problems with credit cards because many of them have huge credit card debts. The interest rates ranging anything between 5% to 30% and balance not paid at each month end cycle, accrue the interest portion even exceeding some time the principal amount drawn as loan.

Some of the credit cards accrue interest on past interest making the total amount of the debt enormously high. It needs lot of care and budgeting to pay in full at each billing date. It also requires restrain on oneself not to buy things beyond somebody's means. In all such credit card payments , it is always very tempting to pay the minimum when somebody responsible enough should pay in full to avoid future financial encumbrances. It is always to be remembered that if you cannot pay in full, at least pay the minimum.

Car Loans:

To avail a car loan is a bad idea mainly because a car looses it value as soon as it is purchased unlike home or student loan where it escalates or prospects in store. In very simple terms, any investments you make in purchasing a car starts losing the gain you could have earned otherwise, the moment you drive off the car from the showroom.

Further, when one consider that you are going into debts just for the sake of riding a car and that too with higher rate of interest compared to other traditional loans, which will end up costing much more in the end, and finally the resale value will be far less than at what cost you purchased. In a nut-sell, taking loan for a car purchase is a bad debt in the true sense of the term. If somebody is not in a position to pay from his income or manage to pay for the car purchase without taking a car loan, it is better for him not to go for the car purchase by taking a car loan.

Payday Loan:

Taking payday loans is probably one of the worst financial decisions that a family man in particular and any person in fixed income group in general, may take. Without any semblance of any doubt, one may surmise that this is a way to end up ruining your credit and putting yourself in unnecessary debt trap.

The interest rate of a payday loan is enormously high normally in triple digit plus fees each time you borrow , this loan can only termed as horrendous and possibly the worst type amongst the bad debt category. Once you borrow enough to cover a paycheck , you owe again to the lender your next paycheck which means you will need another round of loan to cover that paycheck and the process repeats itself and the vicious circle will overwhelm the borrower no end.
About the Author
Joe Kenny writes for Rebuild, offering debt consolidation loans, or for UK residents loans for debt consolidation.
Visit today: Loans from Rebuild.org
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