Smart Tips on Dealing with Debts

Debts can either be good or bad depending on how you use them. For example, a debt you take on to buy a house or a car, are good debts since these acquisitions enable you to put a roof over your head and to travel. Meanwhile, excessive debts on consumer goods such as new electronic gadgets could turn out to be bad debts, that is, unless you intend and have the means to pay them off soon.

The paragraphs below share with you some tips on how you could avoid bad debts altogether. So if you're ready then read on.

  1. Beware of 'interest free' deals.If you took a debt with a promise of an interest-free period, make sure that you are paying the full monthly amount due rather than just the minimum. Otherwise, you won't be able to actually pay the debt within the period, thus exposing you to excessively high interest rates later on.

    In addition, check the details of the interest-free period. Some lenders might backdate the interest and calculate it from the day when you made the purchase, which could lead you to pay even higher interest than you initially thought.

  2. Be careful with mortgage refinancing. Let's say that you have a credit card debt with a 10% interest rate that you could pay off within one or two years. Meanwhile, you have a mortgage loan that has an interest rate of 5% with a 25-year term. Combining the two might seem like a good idea since you'll only be paying 5% on your credit card debt, but beware. The bigger picture is that you'll be paying that 5% interest for the next 25 years, which is the payment term of the mortgage you attached the debt to. You would end up paying a bigger interest on your credit card debt and for a much longer time.

You should therefore decide on whether or not debt consolidation is a good move for you. If you have a debt that you could pay in a much shorter period, consider doing that despite the higher interest rates. You'll actually pay less in the process.

In sum, take on debts if only you could repay them soon enough, with the exception of 'good debts' that we mentioned earlier. And you could only pay your debts soon enough if you have the funds to pay for them. This leads us to the most basic tip when it comes to managing your debts: always try to live within your means.

For more information on how you can get the best deals on your mortgage or even pay it off sooner, contact our professional advisors at Rate Detective. They will provide you with all the information you need to make the right decision. In addition, they will show you a comparison of the rates of the country's top lenders, giving you the power of choice you never had before.

Get your quotes now

What to find out more? Enquire now

Published on November 11-nd, 2012 in Home Loans
Damon Rasheed is the CEO of Rate Detective, an Australian financial service comparison sites specialising in Life Insurance, Income Protection Insurance and home loans. Damon holds a Master's Degree in Economics from the University of Melbourne and has been involved in many start-up internet businesses.
Enquire about Home Loans
Please enter the estimated value of the property

Important Information

Not all providers in the market are included in the comparison.

Any information or advice contained on this website is general in nature and has been prepared without taking into account your objectives, financial situation or needs.

Related Topics