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The Difference in Good Debt and Bad Debt

The American population is now associated with debt around the world. From the government to individual consumers, debt is quickly consuming this country. However, there is hope. Savvy consumers are quickly learning the proper way to handle debt. Also, understanding the difference between good debt and bad debt can help you overcome the reputation that this country has gained.

In the past credit card companies were only interested in consumers who could repay their debt. However, now they are reliant on reeling in those who continually overspend which essentially makes them more money. This is bad news for consumers, who will continue to use this credit and continue to dig their financial whole. This is a classic example of bad debt.

Good debt, on the other hand, will produce cash flow. For example, investing in real estate that will eventually produce you revenue and deductions is the perfect example of good debt. Mortgages are good debt, as well. While you are borrowing money for these expenses, you are also receiving a tax advantage, as well as a place to live.

The fact is that most American’s have a boatload of bad debt. This is when you use borrowed money for disposable items, such as groceries, clothes or other daily expenditures. This will return no cash to pay off the debt, which leaves you having to find the funds to pay it. Because most American’s live beyond their means, this causes a huge problem and adds to the national crisis that is plaguing the American consumer.

The Sneaky Credit Card Companies

Most Americans are all too familiar with the convenience that credit cards have to offer. In fact, the average U.S. household has $10,000 in credit card debt, alone. While having this debt is not necessarily bad, if you do not realize the costs associated with it, it can lead to serious financial problems. When your debt reaches are certain point you will likely have higher interest rates and incur fees for late payments or going over your credit limit. Late fees are accessed even if you bill is late due to the mail, these fees can easily reach $39.

There are some credit card providers who have responded to consumer complaints about the hefty cost of late charges and responded by advertising no late charges. However, there is typically a twist, which may still wind up costing you. For example, Citibank, who is one of the “no late fee” cards, requires you to make a purchase each month with the card to take advantage of this benefit.

However, you still have to wonder how they can charge no late fees, after all this is how most companies make their money. This is where the fine print comes into play. For example, if you pay late with a purchase Citibank reserves the right to raise your interest rate. This is not a fact that is told, which is why you should always read the fine print. Remember the old adage “Nothing in this world is free,” this definitely applies to the credit card industry, which you should understand to avoid creating a debt that you cannot handle.

The Snowball Effect of the Seductive Payday Loan

Payday loans are banned in 11 states. This should make borrowers stop and think about the reason behind this fact. However, the fact that it is flourishing in 39 other states clearly paints the picture that this does not stop consumers from seeking the seemingly harmless, short-term payday loans. But this loan is anything but harmless and quickly starts a snowball effect that turns into a vicious cycle.

A payday loan is typically obtained by the consumer providing the lender a postdated check. This check will be cashed in a predetermined time frame, typically being between two and four weeks. There is no credit check, simply a verification of income with pay stubs or Social Security payments. However, the fact is that when payment time rolls around, consumers are unable to make the payment. This leads to extension on payday loans, or even worse seeking a loan from another lender to pay a previous obligation. As a result, the outstanding loans accumulate interest and fees that eventually lead to debt that is too big for anyone to handle.

The fact is that when you breakdown the numbers, consumers are paying up to 520 percent on their original loan. While this may not seem factual, it is based on current rates in New Mexico, where payday loans are a continuous political issue. The businesses providing these services have been compared to sharks, preying on the lower and middle class who are desperate for emergency funds. Be Free Financial can help you gain freedom from this snowball effect and finally break loose of the vicious payday loan cycle.

Credit Agencies are now provided with more Detailed Consumer Reports

Applying for any sort of credit requires that you allow the lender to look into your financial past. This includes credit cards, mortgages and other loans. This information reflected your payment history and any delinquent accounts that you may have. For many consumers this, alone, seemed like a huge divulgence of personal information. However, it was required to obtain the money that you needed.

Now, lenders are receiving an all new way to look into consumers past. In addition to the factors that they looked for in the past, they can also access delinquencies in rental checks, eviction notices, missing child support payments or judgments, payday loans and all of your repayment history.

Companies are not offering this extensive view of your credit history to provide a comprehensive report for your lenders. Right now these types of reports are only being used for mortgages and home equity inquiries. Plans are already in the works for it to extend to other types of credit, as well.

This is bad news for consumers because these reports may turn up black marks that were previously undetected by other credit reporting agencies. For example, the new reporting methods may turn up mortgages provided by small time lenders, tax liens and if you own more on your home than it is worth. While all of this information is public, it is now pulled together in a convenient location for creditors to get a full view of your history.