A good definition of bad debt is financing something you consume. If you finance something you consume, you have to feed it, or it loses value over time (cars?) you can put it into the bad debt category. There is an excellent way to turn these bad debts to good debt.
Think of all the purchases you make in a week. Groceries, eating out, gas for the car(s), movie tickets, toys for the kids, fountain drinks at the convenience store, coffee drinks at your favorite coffee bar, and the list goes on and on. Some of these purchases are paid for with cash, but most are put on the plastic. Not such a bad idea until the bill is due. That’s when you get to pay a finance charge for all those espresso drinks you bought over the last few weeks.
In today’s society, more and more of our purchases are put on plastic of some kind – debit card, credit card, gift card, etc. We are becoming a cashless society and you can position yourself to benefit from this ongoing trend.
Stop carrying cash
Once your cash is gone, it’s gone forever. Once you spend it, it can’t earn interest for you. Instead, it earns interest for the person you gave it to. If it’s stolen you can’t replace it. Hopefully you earn some kind of interest on your checking account. If not, it’s time to find a bank that will pay you for keeping your money on deposit with them. Keep your cash in the bank so it can continue to earn interest. Credit cards can be cancelled in a few moments and you are not responsible for unauthorized purchases.
Put all your purchases on a credit card
Putting all your purchases on a credit card gives you some notable benefits. First of all is that you are using the banks money today to pay for the things you need. That leaves your own cash in your own account where it can work for you earning interest. Carrying less cash makes you less of a target for theft. Since credit cards offer various rewards programs, the more you spend on your card, the more rewards you earn.
Pay off your card
That is easy to say but difficult to do. The number one way to turn bad debt into good is to pay off your card each and every month. That requires some discipline on your part but will pay off in the long run in two ways. Your cash stays in the bank to earn interest, and you build your credit score by paying you bill in full each month.
Wednesday, July 12, 2006
The #1 Way to Turn Bad Debt Into Good
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1 comment:
My goodness, you have so much good advice!
One time when it's bad to use credit for everything though, is when you *don't* have the money in the bank to pay those bills. One of my friends continually carried a balance on his credit card, and yet always bought groceries with it. I convinced him to instead buy groceries with his debit card instead, and that one small action helped him to stabilize his debt, the first step towards paying it off.
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