There are some things that you really need to understand about debt if you owe money. It’s important to be prepared and informed if you want to get yourself out of a bad situation. Here are 5 things you really need to know.
- Bankruptcy is a Last Resort
Bankruptcy is something that is viewed differently by different people. But both conventional views of it can be incorrect. Some people see it as a great get out of jail free card that they can play when in trouble. But that’s not what bankruptcy should be about. It does offer a fresh start but only when all other options have been exhausted. Other people never consider this option even when it could actually help them. Both of these views are equally unhelpful.
- Sometimes, You Should Maintain Debt
If you have debt that is very cheap and there is some flexibility there, then you don’t need to pay it off fast. Sometimes, it can be a very good idea to maintain this kind of debt rather than clear it off. Instead, you should focus on paying other debts that are more likely to cause you financial problems in the long-term. So, if the interest rate is pretty low, this should not be a top priority. Although, it is always best to be debt free, but it’s vital to get your priorities in order.
- There Are Good and Bad Debts
Some debts are good, and this doesn’t simply mean that the terms and rates attached to them are good. It can also mean something else. For example, a mortgage is seen as a good debt. That’s because it allows you to get on the property ladder, boosts your long-term financial health and improves your life. So, you should recognize this difference between good debt and bad debt rather than viewing them all in exactly the same way. Doing that is never helpful.
- When You’re in Debt, You Still Have Rights
This is something that many people are still pretty ignorant about. They think that creditors can do pretty much anything they want if you owe them money. But that’s not the case. There are many laws and protocols that need to be followed by creditors, and they can’t simply behave in any way they like. The Fair Debt Collection Practices Act outline what your rights are and what creditors can and can’t do.
- Your Interest Rate is Affected By Your Credit Score
Your interest rates will be massively affected by your credit score. So, next time you try to borrow money, you should take this into account. And the further you get into debt, the worse those rates and loan terms will be. This is one of the reasons why so many people get into a cycle of debt. But it has to be avoided at all costs if possible. It’s best to shun loans that offer very high interest rates. It might be tempting when you need money fast, but it’s no good for your long-term finances.