Debt is a word that we as adults deal with on a regular basis. It is a necessity of life for the vast majority of us, a necessarily evil that is apart of the way we do things in society. But debt can be an uglier word for some than it is for others.
For those of us who “have it together”, there is still debt, though it is of the necessary kind. What exactly is necessary debt? It is in the form of larger purchases that are both a necessity in life and something that has a positive impact on your credit and equity going forward.
Necessary debt, generally speaking, is along the lines of owning a vehicle or a home. Those are purchases that, more often than not, cannot be made in its entirety up front due to the size of the principal involved. To pay for these things, we need to take out loans to cover the difference after down payments are made.
This debt can be good as long as you are responsible in paying your bills on time. Having a mortgage or car loan that is paid every month will build up your credit score over time. Having a good credit score is imperative in today’s world: there is so much that can be done when you have a great credit score. You get better interest rates on things that you purchase with credit and are then able to pay those off far quicker without huge interest rates adding to your payments.
The Wrong Kind of Debt
But debt can be scary as well. If you fall behind on paying your bills, interest rates can compound and add to your total debt, giving you a feeling that you may never escape. Knowing the best ways to manage your debt are important so that you can begin paying them down and stabilizing your credit and your finances.
If you can consolidate your debt into a monthly loan, this is preferable because you have one flat payment and you know where your money is going. Best of all, you are not simply paying a minimum balance that barely takes care of interest rates.
But even if you can’t consolidate, it is important to have a strategy. Find what works best for you and work towards minimizing your debt. The last thing anyone needs is to be handcuffed by their debt, so make sure that you have a strategy to pay it off as soon as you can.