debt

How to differentiate good debt and bad debt

Being indebted to a person or business is never a comfortable feeling. For most people, they want to pay off that debt as quickly as possible. Today’s society, however, is full of debt every single day of the year. When you become an adult, credit-card offers, student loans and other monetary transactions are suddenly at your doorstep. Before you take on any debt, it’s a good idea to understand the differences between the monetary types. In the financial world, there’s either good or bad debt. Get to know these debt types before you sign on the dotted line.

 

1. Investments Build Wealth

 

Good debt offers you a return for your indebtedness. You might invest in a home for your family or start a business. Neither of these two situations can be accomplished with cash alone. You’ll have to take out a bank loan. Credit histories aren’t marred by this good debt because you’re growing wealth as a result of that loan. You’ll pay back the funding at some point while enjoying growing equity on the home or business.

 

2. Credit Cards Create Unsecured Debt

 

The worst debt in the eyes of the banking industry is credit-card balances. These debts don’t build wealth. In fact, they actually pull you further into debt with these charges, including:

 

  • Interest fees

 

  • Administration charges

 

  • Yearly membership fees

 

The irony of the situation is that building credit requires a credit card in most cases. Use your card wisely by only spending what you can pay off each month. Carrying a balance will only push you further into debt.

 

3. Student and Home Equity Loans

 

There might be some confusion surrounding student-loan and home-equity debt. When you take out a student loan, you’re investing in yourself. Although this is a lofty concept, you’re still benefiting from the loan by learning skills to better your future and the community. These loans are considered good types. Home-equity loans are also good debt because the funds taken out of the equity are meant to improve the property. Take out this loan, and add a roof to the house. This investment will pay off over time.

 

4. Considering Auto Loans

 

Consumers are often confused about auto loans and their importance to your credit history. Although paying off an auto loan helps your credit score, this common debt is considered to be bad. A vehicle isn’t an investment. It actually loses value from the moment that you drive it out of the dealership lot. Vehicles will never increase in value so be wary about using a car purchase as an investment ploy.

 

5. Being Aware of Interest Rates

 

Regardless of the type of debt, any loan is a bad one when the interest rates are incredibly high. Ideally, you want the lowest rate possible because it directly influences the monthly payment. Stay on top of monthly payments too. You may have a low interest rate, but it will adjust upward when you miss a payment. The adjustment is usually a severe penalty.

 

Learning how to manage debt isn’t a skill that’s usually taught in school. You may want to take a class on personal, money management. Being aware of income and spending habits will keep your household afloat in any economy. In the end, knowledge is power as you decide between good and bad debt.

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What Happens After You File for Bankruptcy

Filing for bankruptcy is a major financial decision that will have ongoing consequences in your life. It doesn’t have to mean the end of your financial life. Many people file for bankruptcy then go on to buy homes, cars and get credit cards. Understanding what life is like after you have filed for bankruptcy will give you the insight you need to make the right decision about your finances.

 

You Will be Offered More Credit

 

One of the things that surprises a lot of bankruptcy filers is that they are bombarded with new offers of credit. This happens almost immediately after their case is discharged in the courts. The reason for this is because you will not be able to file bankruptcy again for another 10 years, so creditors know they have a good chance of getting their money if you take out a new loan.

 

While getting new credit will definitely help you to re-establish a credit profile, take it slow and be cautious when getting new credit. Resist temptation to get every credit card you are offered, and work slowly to rebuild credit.

 

Buying a Home is Possible

 

Most people think that you can no longer buy a home if you file for bankruptcy. While bankruptcy does adversely affect your credit profile, you can still buy a home. The key is to rebuild your credit over 24 months and have a perfect record of on-time payments and responsible use of credit.

 

If you are looking to buy a home, a good place to start is with FHA loans. These government-backed loans are easy to get, even if you have had past credit problems. All you have to do is show a 24 month history of on-time payments on credit accounts, and sufficient income to pay the mortgage. Getting a conventional mortgage may be more of a challenge in the first years following your bankruptcy, so it pays to wait it out for a few years and rebuild credit.

 

Bankruptcy is Not Permanent

 

While a bankruptcy filing will show on your credit report or any other public record, it will not stay on your report forever. After 10 years, all listings of bankruptcy are scrubbed from your credit report, raising your score and giving you better access to credit. If you have filed for Chapter 13 bankruptcy, it will disappear from your credit report after seven years. The good news is that your bankruptcy will lose much of its weight as time goes on, even though it still appears on your credit report.

 

Check Your Credit Regularly

 

In most cases, experts recommend checking your credit twice a year. After bankruptcy, however, it’s important to check your credit report monthly for at least the first six months. While you may have included all of your creditors in your petition to the court, there may still be creditors who are demanding payment of your discharged debts. You are not required to make payments on any debts that were discharged in the bankruptcy, so monitor your credit to ensure that your report is accurate.

 

When you file for bankruptcy, you are getting a fresh start for your finances. After you have had all of your debts discharged, you may find that it is easier to buy a car, get a credit card or obtain credit. With time, the severity of your bankruptcy filing will decrease, and your credit score will gradually get higher.

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The Basics of Filing Bankruptcy

Introduction

 

The debt keeps piling up while you’re sinking with the feeling of anxiety and worry. The possibility of declaring bankruptcy continues to have greater chances of happening. Declaring bankruptcy can be a very confusing and complicated process. It is important to understand some things about bankruptcy to be prepared if it does become a reality.

 

Things to Know When Declaring Bankruptcy

  • Not a Quick Process
  • Finances Reviewed
  • Complicated Forms
  • Bankruptcy Discharge
  • Not a Cheap Process

 

Not a Quick Process

 

Declaring bankruptcy is not a quick process. It is important to understand that courts that deal with declaring bankruptcy are not the same as other courts. On average declaring bankruptcy can last at least four months. When declaring bankruptcy if it is classified as a Chapter 13 it can last anywhere between three to five years. A Chapter 11 bankruptcy can start at a minimum of two years and continue to last for a longer duration. If you want to obtain bankruptcy then you must be able to stick out the long process that may or may not occur.

 

Finances Reviewed

 

It is important to know that declaring bankruptcy gives fair game for finances to be observed and reviewed. You must be comfortable with talking about financial affairs and mistakes you have made financially during the whole process. At some point you will have to talk with creditors during a mandatory meeting. Questions can be asked by the creditors during the meeeting. Therefore, you need to be comfortable airing financial matters to strangers. You also must be completely honest. It is important to have a clear mind and be able to list all belongings, debt, and creditors associated with your current finances. Being dishonest or missing something could lead to an investigation by the FBI. Further actions by the FBI could delay or cause complications.

 

Complicated Forms

 

The forms when declaring bankruptcy is not necessarily straightforward. It is important to be prepared for complicated forms. Also, bankruptcy forms may ask questions that seem a bit tricky. Don’t let tricky questions make you second guess your answers. Therefore, make sure to give yourself enough time to fill out the forms and digest the questions being asked.

 

Bankruptcy Discharge

 

The discharge is a very significant aspect involved when declaring bankruptcy. Generally a discharge indicates that the individual that filed bankruptcy followed what was required under law. Therefore, the individual is relieved from paying any more on the financial debts. For more information regarding general discharge follow this link. Therefore, the discharge will personally only be able to protect the individual filing bankruptcy. It is important to understand that the lender still is able to try to collect debt from co-signers.

 

Bankruptcy Is Not a Cheap Process

 

Declaring bankruptcy can cost a great amount. Hiring an attorney to represent you can cost anywhere between several hundred to several thousands. Even with not hiring an attorney the fees associated with the bankruptcy process can add up to a great amount.

 

Conclusion

 

Declaring bankruptcy can be a very complicated and time consuming process. It is important to understand the basics to help decrease the amount of stress to follow. For more information regarding bankruptcy follow this link

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Signs You Need to File For Bankruptcy

INTRODUCTION

Managing your finances is one of the most important aspects of your life. When it comes to managing finances, part of this entails evaluating and paying off your debts. While most people are able to easily pay off their debts in a timely manner, there are times when they struggle to do this. If you are struggling to pay off your debts one of the options that you can consider is bankruptcy. With bankruptcy an individual is filing a series of documents that legally declare that they are unable to pay their debts. Like a number of other financial matter, there are certain signs you should look for when you are contemplating bankruptcy. These signs will let you know whether or not it is a good idea and in your best interest to file for bankruptcy. The most common signs you should look for when filing bankruptcy are when you have difficulty paying debts, your assets are less than your liabilities, you are not likely to pay off your debts anytime soon and when the amount of your debt is much higher than normal.

 

DIFFICULTY PAYING BILLS/DEBTS

The first sign you should look for when looking to file bankruptcy is when you have difficulty paying your bills and debts. If you are in a situation where you lose your job and cannot keep up with debts such as credit cards or your mortgage, then you will likely be in position to look into bankruptcy. Since your loss of income prevents you from paying your debts you may need to look into ways to eliminate or restructure your debt. As a result declaring bankruptcy is a viable option if you have no realistic means to pay back your debt in a timely manner.

 

ASSETS ARE LESS THAN LIABILITIES

Another sign you should look for when looking to file bankruptcy is when your assets are less than your liabilities. When the total of your assets such as savings, investments, and other property is much less than the amount of money you owe than bankruptcy is something that may benefit you. If you are in a position where the total value of your assets is much lower than that of your debts then filing bankruptcy will likely help you a great deal. The type of bankruptcy you will want to file is Chapter 7 which will give you a complete discharge of all of your debts. Using this form of bankruptcy is ideal if you have no real property and just have lots of debt you are unable to pay back.

 

UNLIKELY TO PAY OFF DEBTS

When looking for signs of when it is time to file bankruptcy, you will want to consider this when you are unlikely to pay off your debts at any time in the near future. Since creditors want to be paid by a certain time they will usually demand payments on a regular basis. However if you are unlikely to pay back your debts within a reasonable timeframe then you will want to consider bankruptcy. In this situation you will benefit by filing bankruptcy when the amount of debt you have is realistically uncollectable by the creditor. Therefore you will want to file bankruptcy when it is very unlikely that you will be able to pay your debts completely within two years.

 

DEBT IS EXTREMELY HIGH

For those who are looking to file bankruptcy, you will know that it is time to do this when your debt is extremely high. If your debt is much higher than normal and that it would realistically take many years to pay it off then you will want to consider bankruptcy. When the amount of money you owe is so high to the point where you just can’t keep up with the payments and it jeopardizes your ability to meet your necessary financial obligations, then you will know that filing for bankruptcy is in your best interest.