Do you know what a bad debt is? A bad debt usually involves owing money for something that is neither essential to your way of life, nor does it advance your future prospects. So, student loans, mortgages or car payments wouldn’t necessarily be bad debts, but they can turn into them.
Bad Debts: How They Happen and How to Avoid Them
- When a Mortgage Goes Bad– Owning a home is probably going to be one of your greatest assets, but if you are not careful, you could get in over your head. Carefully analyzing your income to determine if you can afford a home is key, but you also need to take a good look at your potential mortgage as well. Will the interest rate be fixed or adjustable? Will it be easy to refinance later? Are there hidden fees like fines for early payment or balloon payments? Not knowing the answers to these questions could result in you getting a mortgage that tears your finances to shreds.
- When a Student Loan Goes Bad– Getting a student loan to go to college can be a great way to broaden your horizons and increase the amount of money you can earn over your lifetime. However, tuition costs have exploded in recent years, making it harder to handle these loans. Worse yet, there are private student loans being offered that have very few modification options, which could be trouble on an entry level salary. Federal loans are a better choice for funding college education. They have many modification programs and an income-driven repayment plan.
- When a Car Loan Goes Bad– Having a vehicle to get around in can make your life much easier. No more getting rides to work, no more navigating bus schedules, and no more paying for Uber/Lyft rides. But it can be pretty easy to go wrong if you aren’t paying attention to your car loan. Like mortgages, you need to watch out for hidden fees and balloon payments, but you should also pay close attention to your interest rate. Interest rates can be higher for car loans than mortgages, but that doesn’t mean you should just accept whatever rate you are offered. Do the research on that rate, and check with other lenders to make sure you are getting a fair rate. You can also save some money by selecting a vehicle that meets your needs instead of purchasing a brand-new model with all the latest gadgets. This step can save you thousands of dollars.
Fighting for clients’ financial freedom—Kevin D. Judd is an experienced DC bankruptcy lawyer that can help sort hard to manage debt.