Avoid These Three Types Of Debt At All Costs
Not all debt is bad. Some forms of debt are a necessary component of financial progression, allowing us to purchase things like a new home or vehicle. With the right approach, it is possible to use debt to better your life while keeping your finances well managed – it could even lead to increased wealth when used correctly.
However, there is certainly no shortage of bad debt out there, most of which lead to financial ruin. As not all loans come with the same conditions and interest rates, so it’s easy to get mixed among terrible debt that has no signs of respite.
Avoid these three types of debt at all costs to keep your financial well-being as safe as possible:
1. Payday Loan Debt
A recent form of credit that has led to countless people into a cycle of debt, payday loans should be avoided at all costs. While touted as being a quick and easy loan for emergency situations, payday loans are incredibly dangerous for your finances, coming with eye-watering APRs that quickly accumulate mounts of debt.
By giving short-term loans with high interest and late fees, a payday loan can see your debt snowball in a matter of weeks should you miss a payment, while the longer the loan the more you pay. It could also ruin your credit, making it difficult to secure other lines of credit in the future.
2. Vehicle Title Loan Debt
A vehicle title loan is a type of secured loan that involves using a vehicle as collateral. While an easier way to secure a loan, especially for those with poor credit ratings, vehicle title loans have exceptionally high-interest rates that see you pay far more than it is worth.
Because a vehicle is used as collateral, there is a massive risk of having it repossessed, especially given the short-term nature of most title loans. You usually get a loan amount nowhere near the vehicle’s market value, so be sure to avoid it at all costs.
3. Credit Card Debt
Credit cards can be used responsibly without accruing a mountain of debt, yet it’s also one of the most common types of debt out there that has ruined many people’s finances. Using a credit card is good for your credit score when avoiding total limits, repaying on time, and eventually paying off all credit.
However, spending money you don’t have with a credit card is an all too common issue. The debt from credit cards may sneak up on you too, and with interest rates reaching as much as 20% to 30%, it’s a type of debt that becomes very expensive very quickly.
One of the most dangerous aspects of credit card debt is how long it lasts. With low monthly repayments available, many end up paying credit card debt for years, if not decades, so it’s worth avoiding unless you are confident of using it responsibly.
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