Finance

Ways Not to Accrue Huge Debts

The average American household has a credit card debt of $16,000. If mortgages are included in the computation, that will spike to more than $132,000. These are alarming figures, and in 2016, these figures set a record high. There may be no country in the world with higher average debt than the United States.

The current economic climate is unfriendly to young people starting with their lives. They need a good mortgage refinance rate in Salt Lake City and other cities to pay off their student debts. They need another mortgage to buy a house and a car. They need another to start a business. Everywhere you look, people are borrowing money from the government or banks. It seems that what most Americans do is to apply for loans and wait for their mortgage approvals.

It doesn’t stop there. In a few years, young parents will have to apply for new loans for their kids who are off to college. Or these kids will apply for a student loan that they will have to pay for the better part of their adult years. It is a cycle that never ends. Unless the government finds a way to keep the college fees low, families will get into debt.

Know the Difference Between Good and Bad Debts

But not all debts are bad. There are some “good” debts, too. A student loan is considered a good debt because it gives a person better income opportunities in the future. A business loan is a risky one, but it gives people the chance to start a passive income business. Using a mortgage to buy a house is good, too.

The problem with American debt is that the loans they take out are used for leisure and lifestyle. Using your credit card to buy a $900 55-inch television is the worst decision you can make. The TV won’t make you money. It will not help pay off its cost. Instead, you will be left with a dent on your credit card.

Create an Emergency Fund

Many people get into huge debts because of a dental or medical emergency. Even a car repair emergency can contribute to huge debts. This will not happen if you have an emergency fund that you can tap. Saving for future expenses will allow you to have more control over your debts.

Charge What You Can Afford

If you can’t pay for an item in cash, you can’t charge it. That should be the words you will live by. You should use your credit card only when you can pay off the item you will charge. Otherwise, that will only accrue interest. You’ll be facing a huge debt in the future if you will not be able to pay off these charges.

Don’t Miss out on Payments

Never miss your deadlines. Pay your utility bills and credit card statements in time. If not, the banks will impose a penalty fee on your account. You’ll end up paying far more than what you have charged.

Taking care of your credit means thinking about the future. You don’t want to retire and have to pay off your huge credit card debt. That’s not a comfortable way to go into your retirement life. Think about the future every time you make charges on your credit card. Be responsible with your finances.

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