What kinds of debt are toxic? Is there such a thing as good debt? What kind of debt you own and how well you manage it will determine your credit worthiness. Having too much toxic debt like credit cards, online payday lender loans, and car title loans left out for a long period of time is not the best plan for a well-functioning budget. It is important to understand how this debt will hurt your finances for longer than you realize when it is left unpaid.
The idea of a loan or using credit is based on an agreement between lending company and borrower. A borrower will promise to pay back the money on a set schedule according to the terms and conditions of the loan. There will be interest charged to the account on how much of the loan is left unpaid. Credit cards, which are revolving accounts, expect minimum payments which cover the interest charge and a small percentage of the principle balance. It is an open account with a spending ceiling for how much the borrower can use. The catch with credit cards is that the unused portion can be used at any time. The more payments you make, the more money a person could potentially spend. This is very tempting to someone who does not have extra money in the everyday budget.
When you make minimum payments only, the remaining balance continues to sit month after month with very little of your payment paying it down. If you never use that credit card again and continue making the same low monthly payment your final cost just exploded. How will you ever afford to save for the future? What do you do if there are emergencies which pop up along the way?
Does an online payday lender work well for emergencies?
When you look into using a direct online payday lender loan for cash emergencies, you will want to keep the final cost in the forefront of your mind. The faster you pay it off, the more you save. Many people will refrain from using these direct lenders in the first place, but those who lack credit worthiness are thankful to have another option when the need for quick cash is there. The interest for this cash is more expensive than credit cards, but the money comes in loan form, meaning that it is not a revolving account. If you need more, you must apply for more. The fast cash is especially helpful when overdraft charges, late fees or NSF charges are in the future. The one time interest fee is oftentimes much less than those combined as well as saving financial relationships. Whatever you do, stick to your payoff plan in order to keep the savings in your pocket. If you think you cannot afford to pay the loan off quickly, (less than 5 months) you may want to refrain from using this option. The loans are not intended for long-term debt use. If you can’t afford to pay off the loan, the debt will become toxic along with credit card long-term debt.
If you keep this type of debt out of your budget, you will have that much more money to save for your retirement. The sooner you start saving now, the more you will have for later. If you wait until your 40’s or 50’s to begin saving you will have to put much more of your paycheck away in order to catch up. Take the time to understand your finances, how to protect your money, save money and plan for your future needs. Don’t be in a rush to pay off the good debt when there is toxic debt sitting waiting to be paid.