Good versus Bad Debt
Before borrowing money, it’s worth knowing the difference between good and bad debt. Some things are worth going into debt for, others can leave you in a big financial mess. Here’s how to tell the difference.
What is good debt?
A good debt is a sensible investment in your financial future, should leave you better off in the long-term and should not have a negative impact on your overall financial position.
You will have a clear and specific reason for taking it out, and a realistic plan for paying it back that allows you to clear the debt as quickly as possible, in a series of regular and affordable payments.
Examples of good debt
> Student Loan – This is a good investment because university graduates typically get paid more than non-graduates and the interest rate is relatively low which can easily be repaid once employed and earning.
> Investing in your own business. It helps you develop your own business, as long as you have a sensible and realistic business plan. If your business does well, it will end up worth far more than the loan originally took out.
> Buying a car you can afford, if it is essential to enable you to get to work and earn a living.
Examples of bad debt
> A luxury holiday you can’t afford. A luxury holiday can be a trip of a lifetime, but is best avoided if it’s accompanied by a lifetime of debt. Best solution – save up for your dream holiday.
> A brand new car you don’t need. If you don’t need to buy a new car, then think twice! Don’t end up looking rich but end up down the drain.
>Borrowing money to pay bills and or other credit commitments. Seek free confidential advice, which will help you get your finances back on track.
Tips to avoid bad debt
When considering borrowing money, ask yourself the following questions. If any of the answers are ‘no’, that debt is likely to be bad.
Will borrowing this money improve my finances in the long run?
Have I shopped around to get the best deal?
Am I borrowing this money as cheaply as possible?
Will I be able to cope should interest rates rise in the future?
Will I comfortably be able to afford the monthly repayments?
Do I understand all the terms and conditions associated with borrowing this money?
Do I understand the risks and what could happen if things go wrong?
Considering all the pros and cons of borrowing, all you need to do now is assess your finances if it will be able to cover for your arranged payment schemes. Never jump into something that you cannot thread in the long run!
These tips will ease money stress so you can create a more peaceful life
Do you ever feel stressed-out about money? I don’t have statistics on how many people have financial stress, but I know you’re not alone. In this article I’ll highlight some fundamental causes of money-stress and tips on how to deal with them effectively so you can create a more peaceful life.
How to Deal With Money Stress
There’s no shortage of reasons why people are dizzy with money stress. There are various reasons of financial problems that we can’t control but it affect our wallets nonetheless. It’s important to realize that stress is nothing more than our body’s response to a situation or event. When faced with an emergency – some people freak out and other people stay completely calm and in control. The situation is exactly the same for everyone, but the way each person perceives the situation is very different. Though you may never completely eliminate stress in life, managing it can help improve relationships, health, and general sense of well-being.
> Change your language – Keep positive attitude and use positive language will reduce stress response to financial issues. Never say that you only have limited resources, whereas you can explore other avenues to earn more.
> Reframe your thoughts – How you view your finances and the manner on how you speak about them can change the way you feel. Remember that actions are always preceded by thoughts and beliefs.
> Recognize your potentials – People tend to get more stressed when they believe a situation is out of control. When it comes to money, you always have the power to make a difference, so recognize that choices exist for you to improve any financial problem.
> Stay in the present. – Financial stress comes from projecting a worse-case scenario into the future. Exaggerating a situation to the point that your heart starts pounding and your palms start sweating. Remind yourself that you’re not in the future – you’re in the present moment where you have complete control.
> Get financial help – Talking to somebody or a financial professional can help you see options and solutions to your financial problems that you might be overlooking. Working with a financial planner is a smart way to get back on track so you feel more in control and optimistic about your situation.
> Reduce your debt – If debt is stressing you out, create a spending plan so you can free up more discretionary money and pay it off ASAP. Keep the total of all your monthly debt obligations below 40% of your gross monthly income.
> Choose to build wealth – Using your money to create a secure financial future, instead of spending it on material possessions, will give you a feeling of freedom. You can reduce stress by purchasing less stuff that you and make a commitment to save and invest at least 10% of your income.
Financial concerns and challenges happen to anyone at some point, this can get the better of anyone’s wit. However, knowing that there is always a way out can help ease the worry, and you may be able to find a way out yourself; or you may need someone else’s perspective to help you discover the solution.
Here are some ways to resolve financial problems and difficulties and ease your stress:
- Recognizing the Underlying Issue Causing the Difficulties – Being able to know the root cause of your financial trouble will help pinpoint on where to start resolving your financial woes. To come up with lasting solutions, identify the real source of your financial troubles.
- Creating a Budget – One of the best solutions for combating financial problems is budget. Living within your means/source of income. Planned monthly spending will let you see where your funds are going. Creating a budget is like turning the lights on to find your way around a dark room, it guides spending decisions so that you will dispense funds on what’s important, this way it will help solve your financial troubles.
- Determine Financial Priorities to Lead Your Spending Choices – To overcome financial problems and solve your difficulties, you need to determine priorities. Setting clear priorities for yourself makes it easier to make tough financial decisions. Turning priorities into actionable and achievable goals will help you solve money troubles and get back on track.
- Identify Actions in Addressing the Problems and Achieve Your Goals – The solution to financial problems is often to reduce expenses, increase income, or combination of both. This may not be something you opt to do, but big changes are always much harder than small changes so to accomplish your goals, identify small steps you can take to achieve them. It’s one powerful method of paying debts faster.
- Develop a Plan to Overcome Financial Concerns for Good – Once you’ve come up with things in tackling your financial problems and difficulties, put together a realistic plan to accomplish goals. It can be a short or long-term plan. You can do the planning by yourself, or ask for a professional adviser who can review your situation, help put together a realistic budget, come up with a plan to solve current challenges & get your finances back on track.
- Follow Up on How Things are Progressing – The last step takes place once you are already working on your plan. Often, take a few minutes to review how things are going. As plan progresses, you will see improvements, be open to the possibility of fine-tuning the plan in order to accomplish goals faster, as long as your budget can afford the changes, then you can infuse more aggressive approach.
Overcoming financial problems and difficulties isn’t easy, but by setting clear priorities, identifying ways to achieve these goals, and persevering, you can overcome the challenges and put an end to the financial stress.