The Four Flavors of Healthy Debt22 February 2006
Further one's education and increase future earning potential.
2.
Mortgages -- Home ownership is an asset that can build equity and net worth.
3.
Necessary medical bills -- One's health always takes priority.
4.
Business debts -- Often necessary to build a business and future earnings.
All other types of debt – especially credit card debt – create more problems than they solve, says Stroh. The average household now has 6.3 bank credit cards, 6.4 retail credit cards and 2.2 debit cards, for a total of 14.9 credit cards. The average interest rate on these cards is 14.24 percent, but there are no usury laws for credit card debt: If you miss a credit card payment, your interest rate can skyrocket over 30 percent. About 20 percent of all credit cards are «maxed out» by their owners.
To manage personal business, most people need to own at least one credit card. However, multiple credit cards are not necessary, and consumers never should carry a credit card balance. Stroh advocates paying the full balance monthly, or using a debit card instead of a credit card so that balances cannot accumulate.
«Healthy debt» must meet several qualifying criteria:
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The debt must be limited, without the ability to continue increasing (a revolving account, such as a credit card, is not limited, and increases as you add more to it).
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The debt's interest rate must be stable, at a reasonable, predictable level.
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The debt must have regular payment amounts that are manageable within a budget, on time to avoid late fees and penalty interest-rate increases.
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The debt must have been acquired for a purpose that an average person would say was sensible. (A good test is whether you will be able to remember in six months why you have the debt – coffee drinks or CDs usually can't pass this test.)
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The debt is incurred for something that can appreciate, such as buying a home or investing in a business.
Freedom Financial Network, LLC (www.freedomfinancialnetwork.com) provides consumer debt resolution services through its Freedom Debt Relief and Freedom Tax Relief divisions. The company works for the consumer, negotiating with creditors to lower principal balances due that can often result in savings of up to half the amount owed. Based in San Mateo, Calif., Freedom Financial Network serves more than 5,000 clients nationwide and manages more than $200 million in consumer debt, offering an alternative to bankruptcy, credit counseling, and debt consolidation.
Source: prweb
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