Virtually every consumer has debt at some point in their lives. The most common way to get into debt is through the purchase of an asset or buying too much on credit. The main cause of debt is a lack of financial education in using credit. It is unfortunate that when it comes to debt matters, financial planning is virtually non-existent. This is something that is not taught in schools, thus most people do not realize how a bad debt truly affects them. Quite frequently, people start getting into debt straight out of college even before they have a job. When it comes to financial maters, they are not as bright as they are in their formal education. For example, the average American carries debt over $8,000 in credit card debt but less then 50 percent of high school students receive any economic training.
Another form of bad debt is the purchase of an automobile. For most people, their first major loan is a car loan. In today’s society, most people need an automobile. However, the ultimate cost of buying an automobile is higher than most people can afford to pay through a lump sum cash payment. Consequently, most people buy automobiles on credit. Quite frequently, they satisfy their egos making expensive automobile purchases on credit without any initial consideration on how their high expense may lead them create bad debt.
Furthermore, an automobile is an investment that is a depreciating asset that decreases in value with time unlike a home, which appreciates in value. When people buy a car at a much higher interest rate than a house, they may be impressed by the car’s attractive features but they may not realize that the car’s value will depreciate as soon as they drive it off the lot. In fact, their depreciating asset is guaranteed to go down in value. Ideally, people should borrow less money on a car loan. You are better off buying a simple car that meets your basic needs. In contrast to the bad debt of a car loan, a home loan will give you a good return on your investment and certainly creates additional future income.
When you assume problem debts through a bad car loan or excessive credit card debt, the only way out is either bankruptcy or the bankruptcy alternative, debt negotiation. My webistes, such as CreditProvide provide in-depth education on this matter. But before you take any of these recourses, the best solution may be getting education on the difference between good and bad debt. Financial education is the primary and most important solution! Through sound financial planning, you can always hope for the best and plan for the worse.