Make Your Debt Work For You
When most people think of debt, they see it as an obstacle that they need to overcome. While retiring debt in a responsible manner is always the goal, there are ways to make the debt work in the favor of the individual along the way. Here are some tips that will allow the debtor to manage the obligations and have something to show for the effort.
Understanding the Difference Between Good Debt and Bad Debt
A good place to begin is by understanding there are good debts and bad debts. Good debts essentially provide some sort of ongoing benefit. A good example is someone who has less than perfect credit choosing to purchase a home with the aid of a poor credit mortgage Ottawa. While there is the monthly mortgage payment to manage, the debtor is building equity in the home and has a tangible asset once the mortgage is paid in full.
Bad debt is any type of debt that may provide short-term pleasure but does little to make life better along the way. An example of bad debt is using a credit card to pay for holiday gifts. While it’s great to see the smiles on the faces of all the recipients, the debtor is left with nothing but a huge bill to pay off.
Reorganizing Unsecured Debt
One way to make the debt actually work in the individual’s favour is to consolidate unsecured debts like credit card balances. Many card issuers have provisions that allow customers to transfer debts from other credit cards and even offer zero interest for a limited time on those transfers.
Consider what a difference it makes if the debtor has five credit cards that are nearing their limits. There’s a sixth card with a credit limit that is more than the cumulative amount owed on all those other cards. The issuer of that sixth card happens to offer six months of zero interest on transfers, and then charges a lower rate of interest than any of the other card companies.
In this scenario, transferring the balances to that sixth card makes sense. There is one bill to cover each month, and the six months at zero interest makes it easier to retire more of the debt in a shorter period of time. Along the way, having five cards that show paid in full on the credit report will increase the credit score.
How about Loan Consolidation?
Another way to go is to use a loan to pay off the unsecured debt. This is especially helpful when the rate of interest on the loan happens to be lower than the rates applied to the cards.
Many homeowners choose to take out second mortgages Ottawa as a way to avoid paying more in interest as they whittle away at the debt. Making the payments on time allows the debtor to see the total amount owed decrease faster and also strengthens the credit rating.
Remember that bad credit mortgages can be used to make debt more manageable and ease some of the stress on the household budget. The right strategy also makes it easier to pay off those obligations sooner rather than later. Talk with an expert today and see what these strategies would accomplish. Action today will mean more financial security in the future.