Dealing with debt can be likened to a constant struggle between good and bad forces, and the result of that battle will determine your financial future. Good debt is anything that can potentially increase your net worth, such as home mortgages and student loans. Alternatively, credit cards and other unsecured debt like personal loans, are considered bad debt because they effectively decrease your net worth because of a number of factors discussed below. Therefore a strategy to quickly pay off debt that is bad for your net worth is a logical course of action.

1. Higher Interest Rates

Credit cards generally carry higher interest rates compared to “good debt” such as mortgages and student loans. According to a recent survey, as of March 2008 the average nationwide credit card interest rate hovered around 13.29%[1], whereas it is not uncommon to see mortgage loans at 6-7% and student loans as low as 4% these days. Even one percentage point of interest can cost you thousands of dollars in the long run.

Think about it: Financial experts say that when you are looking to pay off debt, you should pay off your highest interest rates first. So if you have a mortgage loan at 7% and a credit card at 13%, your credit card becomes the priority for being paid off first. Dedicate all of your extra income to the bad debt (credit card bills) before you work on a debt reduction plan involving your mortgage loan.

2. Not Tied to Something of Value

Most people use their credit cards to buy depreciable items, which are items that consistently decrease in value, such as clothes, televisions, electronics, and this causes. Unlike mortgages and car loans, when you use credit cards to purchase depreciable items the debt is not tied to something of value. If you’re going to take on debt, you want debt that is attached to an item of value that could cover the balance if you get tired of paying that bill every month. In fact, credit card debt is just a floating mass of expenses, not tied to anything, that will follow you around until you somehow finally pay it off. If what you purchase on your credit card has no potential of going up in value, then it is bad debt and it will eventually come back to haunt you.

Think about it: Most experts agree that as soon as you purchase a piece of clothing, it decreases in value by up to 50%, instantly! So as soon as you walk out of the door with that new pair of $100 jeans, you have just cost yourself up to $50. Now add to that the interest cost that will accrue on that $100 purchase after 20 or 30 years of you paying the minimum, and you will find that in the long run that one pair of jeans may have cost you a closet full of denimwear!

3. Credit Card Debt Can Last an Eternity

Because credit cards are revolving debt, meaning that debt can continuously be added to this type of account, they can go on for a lifetime. As long as you have a balance on your credit card and continue to use it, you will never pay it off completely. Depending on your credit card balances and how long you continue to use the account, you could be paying off credit debt for 80 years or longer. The average American’s lifespan is now age 78. Any obligation that can last that long can’t be considered anything less than a “bad debt.”

Think about it: If you have a $20,000 credit card balance with an 18% fixed rate, cut up the card today, and continue to pay the minimum that is due each month, it will take you 830 months, that’s 69 years to get rid of this debt (assuming a 2% minimum payment rule). If receiving and paying credit card bills during your golden years isn’t what you had in mind for your retirement, an aggressive plan for bad debt reduction is in order.

4. Excessive Fees

Finally, credit card debt is bad debt because you are inundated with fees. There are late fees, over the limit fees, and severe penalties when you default.

Most mortgage companies will allow you up to 15 days to pay your monthly bill after the due date, but not credit card companies. Hefty fees are immediately assessed if you are late by even one day that cost you between $20-$40 for each offense. Then you have to deal with over the limit fees if you make a mistake and go over the limit that has been extended to you. Finally, you run the risk of having your interest rate drastically increased by the creditor if you default on your payments.

Think about it: What would it mean for you if because of financial challenges your credit card interest rate shot up to 24% because you defaulted on payments? Then on top of that, you are charged a late fee of $35 for each month that you are late? It’s time to think ahead of yourself to prevent a devastating financial bind and look into debt solutions.

Time to Get Rid of Your Bad Debt Mentality

Get rid of that bad debt mentality. Easier said than done, you might say. But you simply cannot be fiscally fit until you eliminate the bad debt. So before using your credit card, you have to start asking yourself some hard questions. The rule of thumb is that if you cannot afford to pay for the item you’re looking at in cash, or you will not realistically be able to pay off this purchase before the end of your credit card’s billing cycle, you simply can’t afford it.

But if you find yourself in a situation where it’s hard to resist the purchase because it won’t be available to you always, ask yourself “Is this item depreciable, or does it have the potential to increase in value at some point in the future? What will it do for my net worth?” If the item is a commemorative item that could increase in value and become profitable to you, technically that is not considered “bad debt.” But if the item will decrease in value as your interest expense goes up, you know what to do: put that card away! If you feel it is time that you got on board with a debt solution that will help you pay off credit card bills more quickly, you might want to look into an online debt consolidation company. They have debt reduction programs tailored for your unique situation.

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If you are looking at the various debt relief programs that are available, it’s important to first have an understanding of the different types of debts and how their terms affect your financial situation. Debt consolidation companies will usually only cover your unsecured debt, which includes credit cards, student loans, medical bills, and legal fees. There are two types of unsecured debts that you may be holding – revolving and installment accounts.

What is the Main Difference?

With a revolving line of credit, the principal balance varies because debt can be added to the account. The most common example of a revolving account is a credit card, where a simple swipe can raise your balance. A revolving debt will never end as long as you keep using it (thus the term “revolving”). Alternatively, an installment account has a fixed principal balance, a pre-set monthly payment, and fixed terms that don’t ever change unless the interest rate is variable and fluctuates, and in other rare circumstances that are determined on a lender by lender basis. One great example of an installment account would be a 60 month business loan. You make a set payment each month until the account is matured.

What Are the Pros and Cons of Each Type of Debt?

The best way to understand revolving and installment debt accounts at a glance is to examine the pros and cons of each type of account:

Pros of Installment Accounts

- Installment accounts have a definite end;

- You have a set payment each month, so there is no surprise;

- You know exactly how much interest you will have to pay over the course of the loan.

Cons

- Sometimes comes with high interest rates that cannot be changed;

- More of a long term solution to a short term cash crunch.

Pros of Revolving Accounts

- Interest rates can be reduced;

- You can avoid paying interest by paying off the balance every month;

- Can be a temporary solution to a cash crunch, if you manage it responsibly.

Cons

- Can become a lifetime debt if mismanaged;

- Interest rates can be increased according to the credit card company’s discretion;

- More debt can be added to the account on an ongoing basis, so there is a constant temptation and possibility for overuse;

- More risky, because you can go over the credit limit and create a myriad of new issues;

- Excessive fees for lateness, cash advances, and going over the limit.

Which Should be Paid Off First and Why?

Your debt reduction plan needs to be structured in a way that maximizes your interest savings. Because revolving account balances are more difficult to control and have higher interest rates on average, most debt experts will recommend that you pay these accounts off first. If you don’t take care of those credit card balances expeditiously, you could end up paying credit card bills for the majority of your lifetime, and thus an outrageous amount of interest. Interest rates are often much higher on revolving debt accounts also.

Important Considerations

If you are still debating on whether a revolving account or an installment account is a better debt to hold, or which type of account you should prioritize for repayment, here are a couple of other considerations you’ll want to keep in mind.

- Calculate the True Cost of Each Type of Debt. Do a comparison of the two types of accounts to decide what the actual interest cost will be for each account if you allow them to reach “maturity.” (Maturity is used loosely when discussing revolving accounts because they can go on forever.) Whichever type of account is the most expensive with the longest payoff period is obviously the one you want to eliminate first. Here is a quick example – you can just plug the figures that apply to your own debts (at inception) into a financial calculator to see the results for yourself.

Let’s say you purchased a $2,500 laptop for your son or daughter on a credit card, and took out a $2,500 business loan on the same day, both at the same interest rate.

Based on the higher interest cost, and the temptation to use the revolving account for new charges, it clearly makes more sense to pay off the more expensive credit card debt before an installment loan.

- Prepayment Penalties. Some installment loans come with a prepayment penalty. If you pay off the debt early, or rather, before the maturity date, they will charge you expensive fees. This is to assure the creditor a minimum profit from the loan. If your installment loan has a prepayment penalty it make not make financial sense to even include it in an aggressive debt reduction plan. Talk to your lender to find out what that penalty would be. You can then determine if paying off the loan early would still result in a significant cost savings, even after the prepayment penalty is applied.

When you have information on your side, you will be able to find a good debt solution that will allow you to pay off debt quickly and efficiently. Be sure to browse the entire NetDebt.com online debt consolidation website to find out more about debt consolidation companies and other debt solutions that are available to you.

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Just look at it, inserted harmlessly in the folds of your wallet. That little three and three eighths by two and one eighths inch glossy charge card looks oh so innocuous as it beams and gleams in the sunlight, looking forward to its next day of swiping!

But the creditor who signed you up for this seemingly innocent card are far from naïve. Matter of fact, they realize exactly what’s going on.

It’s not a fluke that as per the Federal Reserve’s most recent survey nearly half of U.S. households are holding credit card balances  and are now in search of debt relief. Credit Issuers have made  a multi-billion dollar industry from knowing how consumers think and by guessing the everyday credit card user’s habits. We have listed some things that creditors realize that card holders are often unaware of:

-    “Rewarding” You With a Higher Credit Credit Threshold Keeps You Hooked. Card Issuers commonly ”thank” good customers who pay their bill in full devotedly every 30 days by raising their credit card maximums. However in actuality, they are aware that when your maximum continues to rise, you are prone to utilize the card on a more regular basis. At some stage in that pattern of behavior, you will get to a peak where the credit card company will no longer raise the maximum and is making more money from the elevated interest charges on your credit statements. It’s all about anticipating the customer’s future actions.

-    Your Past History Forecasts Your Forthcoming Actions. An extra morsel of invaluable knowledge that credit card companies profit from is your complete credit card usage. They have a detailed history of your usual buying behaviors, amounts owed, and what you have decided on in specific situations that have arisen in your financial history. What you have done in previous situations is a great forecaster of your potential deeds. Case in point, perhaps you initiated a new trade and employed your card to buy $1K in company related supplies one day. Now your creditor realizes that you are more likely to use your card for both personal and venture-centered reasons. In another example, if a creditor sees that you have a penchant for expensive brand name , they won’t simply predict that you’ll buy further expensive items in the near-future, but furthermore forward you special offers with your bill for brand name clothes from its business associates.

-    Probability for Economic Downturns. Many credit card companies have complete departments charged with studying the economy and forecasting possible economic problems that would force consumers to resort to their available credit more regularly. It is not by accident that at a time when many people say that the U.S. economy has hit a recession due to the rising price of food, oil, and other everyday necessities, creditors are gaining more and more earnings because of a rise in the everyday use of credit cards.

-    Card Users Will Not Always Read the Fine Print. Credit card companies also rely on the notion that a lot of their consumers are too lazy to read the fine print of their credit card statements and promises. If a credit card customer continues to pay the minimum payment, not knowing what the APR is, and not understanding how payments are applied, they can become stuck in a long cycle where they will pay off credit cards for a lengthy period of time. Meanwhile, the creditor will keep on reaping the profits from the consumer’s lack of understanding for a long time to come.

-    0% APR Offers Convince You to Charge More, Thus Raise Your Balance. A few years back, credit issuers started doling out varied low APR deals to encourage customers at other companies to transfer their balances. While a significant amount of customers took on these balance transfer deals to save interest and pay off credit cards, they might not have taken into account the fact that by helping to free up credit on their credit card accounts, these credit issuers were really creating somewhat of a trap. If a consumer who is trying to pay off credit cards for whatever reason uses the new low APR credit card after a certain period of time (even if the 0% balance transfer APR is valid for the duration of the balance transferred), the rate on that new purchase balance can rise to 18% or more, and is paid after the low APR balance transfer. That means that 10, 15, or 30 years into the future when the low APR balance is at last at 0, the amount you purchased on the card at 18% has been accruing in interest for all of those months as well. You could put yourself in the same position as before!

Complications Come

The number one thing that credit card companies know way in advance that we regular folk don’t predict is that life challenges occur. Unanticipated bills come up, vehicles must get worked on, and health and tooth procedures have to be paid for. In many of these circumstances, people have found themselves so far in financial issues that their instant solution to unanticipated outlays is to resort to credit.  And so continues the depressing tale of US consumers who are trapped by expensive credit card bills and savvy banks that rack up profits off of the despair and lack of knowledge of consumers.

If you have found yourself in a situation where you have been victimized by all of these snares and have accumulated a substantial amount of credit balances due to life complications, it’s dire that you realize that there is hope, and surely there is an answer to your debt problem.

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What the Credit Card Companies Understand That Keeps Them Wealthy

Just look at that piece of plastic, sitting ever so neatly in the card section of your wallet. That tiny three and three eighths by two and one eighths inch glossy charge card seems oh so guiltless as it shimmers and glimmers in the light, looking forward to an imminent day of action!

Yet the credit issuer who signed you up for this outwardly innocent card are not clueless. Matter of fact, they know exactly what they are doing.

It’s not by chance that according to the Federal Reserve’s 2006 survey nearly half of United States families are struggling with credit card balances and are now looking for debt help. Credit card companies have built a multi-billion dollar industry from knowing how people think and by guessing the everyday person’s habits. Below are some things that credit card companies know that credit card users are sometimes in the dark about:

- Customers Do Not Commonly Read the Fine Print. Credit card companies also rely on the notion that most credit card users are too lazy to read the fine print of their credit card arrangements and deals. If a card customer keeps paying the least amount due, not realizing what theinterest cost is, and not digesting information about how their monies are applied, they can discover too late that they are trapped in a lengthy rotation where they will pay off debt for a lengthy period of time. Meanwhile, the credit card company will continue to reap the perks of the customer’s lack of information for a long time to come.

- 0% Balance Transfer Offers Lure You to Charge More, Thus Owe More. Years ago, creditors started mailing out numerous 0% balance transfer deals to encourage consumers at other banks to transfer their money. While a lot of people took advantage of these low APR deals to save cash and pay off debt, they may not have thought about the fact that by helping to free up money on their card accounts, these creditors were actually producing somewhat of a snare. If a customer who is seeking to pay off debt decides to use the new 0% balance transfer credit card after a certain period of time (even if the 0% balance transfer rate is in force for the life of the debt), the rate on that new purchase can rise to 18% or more, and is paid off after the low rate balance transfer. That means that 15, 20, or 35 years from today when the 0% balance is finally at 0, the balance you purchased on the credit card at 18% has been amassing interest for all of that time also. You might put yourself in the same position as you were in previously!

- “Rewarding” You With a Higher Credit Limit Keeps You Hooked. Credit card companies commonly “reward” decent customers who pay their monthly debt in full loyally each 30 days by raising their spending thresholds. But in reality, they know that as long as your limit increases, you are likely to utilize the card more frequently. At some time in that pattern of behavior, you will get to a high balance where the creditor will no longer raise the credit threshold and is making more money from the increased finance expenses on your credit card bills. It’s all about anticipating the consumer’s behavior.

- Your Buying History Predicts the Future. An extra bit of valuable information that credit card companies benefit from is your complete card habits. They have a full file of your previous retail activities, balances, and what you have decided on in certain circumstances that have come up in your buying history. What you have done in earlier times is a great forecaster of your potential actions. Case in point, perchance you initiated a new company and employed your credit account to acquire $1,000 in business related supplies one day. Now your bank knows that you are probably going to utilize your available balance for both personal and venture-centered causes. In an additional example, if a credit issuer sees that you have a desire for high priced brand name wardrobes, they will not simply guess that you’ll acquire further high priced items in the future, but furthermore forward you special offers in the mail for brand name clothing from its business associates.

- Probability for Rough Patches in the U.S. Economy. Many credit card companies have whole teams charged with examining the economy and forecasting possible economic issues that would make credit card holders to use their credit cards more frequently. It’s not a coincidence that at a point in history when a lot of people believe that the United States economy is experiencing a recession as a result of increases in the price of oil, food, and other everyday necessities, creditors are gaining more interest because of a rise in the daily use of credit cards.

When Life Throws You a Curve Ball…

The biggest thing that card issuers see way in advance that we regular folk don’t always realize is that sometimes life throws curveballs. Unexpected costs arise, autos need to get fixed, and medical and tooth procedures have to be carried out. In most of these cases, consumers have found themselves so deep in monetary issues that their instant solution to unforeseen costs is to begin using credit cards. And so persists the saga of U.S. credit card users who are trapped by excessive credit card bills and savvy credit card companies that get rich from the desperation and lack of knowledge of credit users.

If you have put yourself in a circumstance where you have been taken by all of these attempts to lock you into credit card debt for eternity and have built up a substantial amount of debt due to life issues, it’s dire that you know that there is hope, and you can feel assured that there is a solution to your debt concerns. Debt relief programs akin to the one you’ll stumble on at NetDebt have succeeded at making thousands of customers break free from their bad dreams involving debt.

If you want to become free from debt, apply for an online debt consolidation at NetDebt. The debt relief specialists with NetDebt will provide you with effective debt help that can be put into effect within days!.

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Credit Card Companies  Benefit From Your Bad Habits

Oh look at that card, tucked away harmlessly in the folds of your purse. That little three and three eighths by two and one eighths inch glossy credit card looks oh so guiltless as it beams and sparkles in the sunlight, awaiting an upcoming day of action!

However the credit card company who assigned you this outwardly innocent card are not clueless. Actually, they know just what’s going on.

It’s not by chance that according to the Federal Reserve’s latest survey nearly half of American families are holding credit card debt  and are now looking for debt relief. Credit Issuers have developed  a multi-billion dollar industry from guessing the average credit card user’s behaviors. Below are some things that banks know that card holders are sometimes unaware of:

-    0% Balance Transfer Offers Convince You to Charge More, Therefore Owe More. Several years back, credit issuers were mailing out varied 0% APR deals to convince customers at other companies to transport their money. While many customers took advantage of these low APR deals to save cash and pay off debt, they might not have thought about the fact that by allowing customers to free up money on their credit accounts, these credit issuers were really creating somewhat of a trap. If a consumer who is seeking to pay off debt ends up using the new 0% APR card account after awhile (even if the 0% balance transfer rate is in force for the duration of the debt), the APR on that new purchase balance can shoot up to 18% or more, and is paid off after the low rate balance transfer. That means that 12, 22, or 32 years into the future when the 0% balance is eventually at 0, the total you added to the card at 18% has been accruing in interest for all of those months as well. You could realize that you’ve put yourself in the same boat as before!

-    ”Thanking” You With an Increased Credit Threshold Keeps You Hooked. Credit card companies commonly “reward” excellent debt holders who pay their monthly debt in full loyally every month by raising their account thresholds. But in actuality, they realize that when your limit continues to rise, you are likely to swipe the card even more. At some point in that process, you will get to a height where the credit card company will stop raising the credit threshold and is benefiting from the higher finance expenses on your monthly bill. It’s all about predicting the consumer’s activities.

-    Possibilities for Economic Downturns. Many card issuers have complete departments dedicated to researching the economy and forecasting possible economic complications that would cause consumers to use their credit accounts more recurrently. It’s not by chance that at a point in history when many experts believe that the American economy is experiencing a recession because of increases in the price of food, oil, and other everyday necessities, the credit card industry is racking up more earnings because of an increase in the everyday use of credit cards.

-    Card Users Don’t Usually Scan the Small Print. Creditors also bet on the belief that many credit card users are too busy to look over the fine print of their credit card arrangements and agreements. If a credit user keeps paying the lowest payment possible, not realizing what the APR is, and not knowing how payments are distributed, they can discover too late that they are stuck in an extended cycle where they will pay off debt for an ongoing period of their lifetimes. All the while, the credit card company will keep on reaping the benefits of the consumer’s deficiency of information for a long time to come.

-    Your Usage History Determines Your Forthcoming Actions. Another bit of valuable knowledge that card issuers profit from is your full credit usage. They have a complete file of your past buying habits, balances, and what you have decided on in certain predicaments that have occurred in your buying history. Your behavior in previous situations is a useful forecaster of your future deeds. Case in point, maybe you initiated a new trade and used your credit card to buy $1K in production related gear one day. Now your bank knows that you are probably going to use your available balance for both private and commercial purposes. In another circumstance, if a creditor notices that you have a desire for expensive brand name jeans, they won’t only guess that you’ll buy further expensive items in the coming months, but furthermore forward you special deals with your bill for brand name clothes from its advertiser associates.

When Life Throws You a Curve Ball…

The number one thing that banks realize way before it occurs that we regular folk don’t predict is that sometimes life throws curveballs. Unexpected costs come up, vehicles need to get fixed, and medical and tooth procedures have to be carried out. In many of these situations, people have gotten themselves so knee-deep in financial problems that their immediate response to unforeseen costs is to start using credit cards.  And so continues the saga of US customers who are stuck with expensive unsecured debt and smart creditors that make money off of the desperation and financial ignorance of consumers.

If you have put yourself in a state of affairs where you have been victimized by all of these attempts to lock you into credit card debt for life and have built up a substantial amount of bills due to life happening, it’s dire that you realize that there is hope, and you can feel assured that there is an answer to your debt concerns. Debt Solutions like the one you’ll discover at NetDebt have helped thousands of consumers break out of their debt trances.

If you are ready to become free from debt, find out more about the debt settlement programs at NetDebt. The debt solution experts with NetDebt will give you real debt help that can be implemented immediately.

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