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Publication: Thrifty Tips
Good Debt...Bad Debt

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THRIFTY TIPS                                May 20, 2008
        "Pinch your pennies until Lincoln squeals..."
------------------------------------------------------------   

Greetings Thrifty Friends, Good Morning

When you look at your bills each month, you may feel 
overwhelmed by the amount of money that you’re spending 
on debt. Sometimes debt might seem like a trap that you 
only want to fight your way out of, but not all debt is 
bad. When a lender looks at your credit report to see 
what kinds of accounts you have, they will look at some 
debts more favorably than others. If you’re focusing on 
getting out of debt, you first need to understand which 
debts are considered bad and which are considered good.

Have a Good Day!


Keep pinchin' those pennies,   
Penny   

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                           *****   

TODAY'S THRIFTY TIP:   

Good Debt:

Some of your debt might be considered an investment. 
You’re probably thinking, “How can anything as bad as 
debt be considered an investment!” If the debt was 
incurred to purchase something that will appreciate in 
value and can contribute to your overall financial 
health, then it’s very possible that debt is a good one.

For example, a home purchase can be considered to be a 
good debt.


Bad Debt:

Just like there is good debt, there are some bad debts 
too. When you use debt to finance things that can be 
consumed, you aren’t accumulating good debt. This is 
the kind of debt that creates an unhealthy financial 
situation. Credit card debt is often considered bad 
debt because of the nature of items that credit cards 
are used to purchase. You should never accumulate debt 
to purchase everyday items like clothes or food. If 
you use a credit card for these types of purchases, you 
should pay the balance in full each month.

Even debt used to finance a vacation is bad debt. Even 
though it might help you feel better and be more 
productive once you return, a vacation does not appreciate 
in value. Don’t use debt to pay for a vacation and 
especially don’t use it to pay for a vacation you can’t 
afford.


Putting It Into Practice:

Good debt is obtained through making wise decisions about 
your future, not for the sole purpose of having good debt. 
For example, you might make the decision to obtain your 
Master’s degree to increase your earning potential. Taking 
out a student loan, if you have no other way of financing 
your education, is a valid reason for taking on additional 
debt.

Let’s say you’re analyzing your financial picture, trying 
to decide how to pay off your debts. It’s usually a good 
idea to focus on paying off your bad debts first. Since 
they provide no value, they're more costly than your good 
debts. You should pay off credit cards and auto loans 
before tackling mortgages or student loans.

Some people consider using good debt to pay off bad debt, 
like getting a mortgage for $110,000 instead of $100,000 
and using the extra to pay off credit card balances. This 
isn’t a good idea for several reasons. First, repaying 
debt with debt is never a good idea. Second, it ends up 
taking longer to pay off the mortgage than it would have 
otherwise. Third, the higher mortgage increases your 
monthly payments and the time it takes to build equity in 
your home. Use cash to repay debts, not more debt.

You must still be careful that you don’t take on too much 
debt, even if it’s good debt. If you’re overloaded with 
debt, then it doesn’t matter whether the debt is good or 
bad, it still hurts your financial health. Reducing Debt 
can help you come up with a plan to reduce your debt to a 
healthier, more manageable level.


                           *****   

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                           *****   

        *** PENNY'S THRIFTY TIPS BOOK IS HERE  ***   

Save your money simply and successfully with all of Penny's   
best Thrifty Tips. For more info or to order visit:   
http://www.gophercentral.com/book/thrifty.html

                           *****  

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------------------------------------------------------------
Questions? Comments? me at: mailto:   
Email Penny   
************************************************************ 
END OF THRIFTY TIPS - Another GopherCentral Publication   
Copyright NextEra Media. 2008. All rights reserved.   

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