What is Debt?



Coping with Debt

Did you know there are two types of debt? Good debt and bad debt. Some people will say any debt is bad debt, but considering how costly it really is to pay for an education or a home, most of these expenses are not something that can be covered by cash.

Can you tell me about "Good Debt"?

Good debt is generally debt that can provide a long-term financial payoff. Educational loans and home loans generally fall under the category of good debt. So, when you apply for these types of loans, you will often find they will have some of the lowest interest rates available.

When you’re buying a home, consider how much you can comfortably put towards a monthly mortgage payment. If you don’t have a pool of savings available to get started, consider a FHA loan, where you may deposit less than five percent of the purchase price as your down payment. We're happy to help you find the loan, rates and terms that will best suit your needs.

Educational loans used for college tuition are also a source of good debt. Visit SallieMae® for more information about educational loans. However, the cost of college is rising faster than the pace of inflation. So, now is the time to consider saving your money ahead of time so that you can defray large loan amounts to cover four years of tuition. Consider our Coverdell Education Savings Account as a perfect place to stash your cash. Get an early start - set-up an account for each child while they are still young and watch this money grow!

So what is considered "Bad Debt"?

Bad debt tends to be short-term debt in which the loan lasts longer than the item you bought, and for which there is no financial payback. Toxic debt can be caused by multiple sources. Credit cards used unwisely and turning to pay-day lenders are both forms of bad debt.

Credit cards used wisely can be highly beneficial. However, uncontrolled spending will only lead to monthly payments that you can’t afford. It’s very easy to spend more than you planned when you aren’t paying with cash or checks. The VISA® Platinum credit card offered by FedChoice Federal Credit Union is a great choice if you need to escape from high interest rates. Oh yeah, we're not going to charge you a balance transfer fee either!

Do you have any advice on how to get rid of debt?

No matter what type of debt you're carrying around, the goal is to pay it off in the least amount of time. Ways to do that?

  • Set up a budget – and stick to it!
  • Put your cards on ice! A bowl of water in the freezer will do the trick. You’ll think long and hard before making a purchase if you have to wait for the ice to melt.
  • Pay more than the minimum monthly amount on your credit cards. Sounds easy, but a lot of people don’t do it!
  • Make a snowball! After you pay off one debt, roll the amount you were paying onto the next outstanding bill with the highest interest rate.
  • Create an emergency fund. Start small – set aside loose change, rebate checks, money saved when you use coupons - anything that will keep you from turning to some form of toxic loan when you need money the most.
  • Think you need more one-on-one assistance? Click here to visit the National Foundation for Credit Counseling's website. Their offices are staffed by professional Certified Consumer Credit Counselors who can provide personal assistance when you need help with stressful financial situations.

Need more help? Give us a call, we have people who are ready and willing to set you on the path to financial freedom!
* APR = Annual Percentage Rate