How to Make Sure You Stay Away from Bad Debt
Most people have quite a bit of debt these days and in theory this is not necessarily a bad thing. Not all debt is bad, unfortunately most people have quite a bit of bad debt. Therefore it is important to make sure that you know the difference between good debt and bad debt and that know how to avoid the latter.
Obviously if you are going to stay away from bad debt you are going to have to know what bad debt is. Basically bad debt is when you are borrowing money to make a purchase that will not help to increase your net worth. There are times when borrowing money can be a good idea; the most obvious example of this would be when you take a mortgage to help you to buy a house. This is debt that is being used to make an investment and it is really the only reason that you should be borrowing money. Unfortunately a lot of people have a quite a bit of bad debt.
By far the leading source of bad debt is credit cards, not only is the money that you are borrowing being used to buy things that are not helping your net worth but because of the very high interest rates credit cards are some of the worst debt that you can possibly have. This being the case the best thing that you can do is to stop using your credit cards altogether. For most people however that is not a very realistic option.
If you can't avoid using your credit card the best thing that you can do is to make sure that you pay your balance in full every month. This will prevent you from actually incurring any interest which means that you will not be running up any bad debt. Of course for most people paying off the balance every month is going to be a problem, especially if they are already carrying a large balance. If this is the case you are going to have to work on getting your credit card debt paid down.
The best way to make sure that you are able to pay off your credit cards in full each month and avoid bad debt is to be very careful about how you use them. Most people will use their credit card to make day to day to purchases; this is really not a good idea. Things like food and there routine items should be paid for in cash. A credit card is really intended for situations where cash is not an option, like booking a hotel room. If you make sure that you only use a credit card when it is necessary and that you don't use it to pay for things that you really can't afford you should be able to avoid bad debt.