Financial debt is not the same for everyone. It helps some people improve their lives, while others burden themselves with overwhelming debt. Some people even choose to avoid credit and debt altogether.
Identification
Financial debt is when you take out a personal loan, student loan, credit card, mortgage or car loan to buy things now and pay for them later. A written agreement or promissory note may or may not be involved.
Significance
Credit, which becomes debt once you use it, helps you buy things that you normally wouldn't be able to buy. For example, most people can't pay $200,000 cash for a house, but can afford to do so over 15 to 30 years.
Considerations
Debt raises the price of the things that you buy due to the interest rate. For example a $200,000 mortgage may cost you almost $480,000 after 30 years with an interest rate of seven percent. That is more than double the original price.
Benefits
When you keep up your payments, debt can help improve your credit score as your lenders report your timely payments and your credit file becomes older over time.
Warning
Missing payments on your debt can lower your credit score, which can make it more difficult for you to get future credit or even rent an apartment and get a cell phone.
0 comments:
Post a Comment