Expert Insights Into Wealth Creation

On the surface, it appears that debt is a surefire way of limiting wealth creation. Truth be told, not all debt is bad. There are certain types of debt that are regarded as good debt, while others are bad debt. Mortgages (for personal or business real estate) are typically considered good debt, as are student loans. Bad debt is not an investment that will grow in value, and it certainly doesn’t generate income over the long-term. A classic example of bad debt is credit card debt. There are stark differences between the interest rates on good debt and bad debt. For starters, mortgages, automobile loans, and student loans are typically associated with low interest rates.

Bad debt like payday loans (personal loans from non-bank lenders) and credit card debt are associated with extremely high interest rates. Consider that a credit card APR (annual percentage rate) can range between 15% and 28%. When you purchase things that do not generate long-term income streams, and they do not appreciate in value, bad debt is incurred. Money management experts routinely recommend avoiding buying items that you cannot afford. If it has to be put on a credit card, it isn’t needed. Whether this is a home entertainment system, a pair of expensive cross trainers, or an overseas vacation doesn’t matter – these expense items do not add value to your financial portfolio.

How Is It Possible to Effectively Deal with Debt?

Dealing with debt is a seemingly complex undertaking. One of the most effective ways of dealing with debt is separating good debt from bad debt, and tackling the most pressing concerns as quickly as possible. The literature on this topic is already well established, meaning that you don’t need to reinvent the wheel to deal with your debt problems. One debt management solution that has been gaining traction in the media in recent years is debt consolidation. At its core, debt consolidation is an application for a loan to consolidate all your other debts, typically credit card debt, personal loans or business loans. The reasoning behind a debt consolidation loan is as follows: by borrowing money at a lower interest rate than the prevailing rates on your credit card debt or personal loans, you end up paying less overall and saving more.

Wealth creation is all about reducing your expenses, saving more money, and building up an attractive investment portfolio. There are multiple experts who agree with this thinking. Debt consolidation loans should not be viewed in isolation. These are tools available to customers, but dramatic lifestyle changes are required to keep the debt away. For example, the most widely touted rule is as follows: Live Beneath Your Means. When you spend less than you earn, you allow your personal disposable income levels to rise.

Since there are only a handful of ways to raise the amount available for savings, you should always consider the dual strategy of reducing expenses and if possible to raise your income level. Wealth accumulation is a time-consuming process since assets only appreciate through the passage of time. This is true of all asset categories such as real estate, equities, commodities, and the like. For example, gold prices have risen close to $1,280 per ounce in recent weeks and are holding at that level thanks to dollar weakness and geopolitical uncertainty.

There are many effective ways to reduce debt. Expert advisors recommend debt consolidation loans or personal loans provided the terms and conditions (interest repayments) are less than your current debt obligations. Once you pay off your credit card debt with a debt consolidation loan or a personal loan, keep those credit cards open. Your credit utilization ratio should decrease, thereby raising your credit score and helping you to qualify for better interest rates in the future. It is important to remember that neither debt settlement nor Debt Consolidation eliminate your debt.

You still have to repay the debt consolidation loan, and even with debt settlement, you’ll probably have to pay less but payment obligations will not disappear. It’s important to have a sound understanding of interest rates since even a slight upward or downward revision of the current interest rate can have a dramatic effect on the lifetime payments of your loans. The point of departure is your current debt burden. How much are you paying, and how much can you reduce that debt with home equity loans, personal loans, or debt consolidation loans. As always, ensure that the company you’re working with is approved by the Better Business Bureau and possibly even the Atty. General’s office.

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