Bad debt is something that has a depreciating cost so if you have a car
loan that's a bad debt, if you buy a house that's a good debt; it's like good
cholesterol and bad cholesterol.
Hi! This is Taayla with Engrace Financial Solutions.
You are watching Street Smarts with Taayla.
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There is such a thing as good debts and bad debts.
What is a bad debt to you?
Today, what we're going to do is
talk about debts
and I know it's a big issue in our society but
we're going to bring you a solution
and help you with that.
So, let's go ahead and
we're going to unravel this problem.
Good debt is a when you borrow to buy an asset
that is appreciating like a home.
Bad debt is consumer debt like your credit card.
The only thing having to own a credit card
is having a bad debt because
then when you're not paying off your credit card,
they're obviously charging you a lot of fees on that.
So what I am going to show you is a way
for you to pay off your consumer debts.
It's called snowball effect. I did not invent this but it is so good that I want to share with you.
So, what you have here is four different items of consumer debts;
it could be department credit card, credit card, and line of credits.
You have a total of $20,000 in debts and the different interest rates involved in the
minimum that you have to pay for each credit card so the total to just pay the
minimum is $200 per month and let's say you have a budget of $400 to put toward
paying off your debts.
Well, that extra $200 what you want to do
is just focus on one debt at a time so that means for the first period
you put the $200 onto the first debt which is $220 and
just pay the minimum on the rest of it. It will take you ten months to pay off
the first credit card and then you would take this $220 and you add it to the
second minimum amount and that will give you $250 that you're paying it down on a
monthly base and what that would do is it would take thirteen months to put
this credit card to zero balance and then you continue doing this so from $250
now you add it to the next credit card now that's $300 you do that for 20 months
go to 0 from 300 you add it to the $100 so on right so what you see then is that
over the course of 72 months, six years you would have paid off this twenty
thousand dollars of debts.
The other option to do so is that you can have that extra $200 split it in
four and added to the minimum so that you know for the first credit car you'll
pay $70, $80, a $100 so on, right? But what you find instead and I did the
math so you're gonna trust me on this is that it will take you nine years to
payoff the same $20,000 of debt
and what's more demoralizing is
the fact that even to pay off one credit card it actually takes over three
and a half years so you can do this method, you can look at other method but
the point is figure out a plan to pay off your debts because you just don't
want that in your life.
I'd love to hear from you on what you're doing in your fight against debts.
Share your story on the comments below and let's just encourage the community.
We want to be able to go to consumer debts zero.
This is Engrace Financial Solutions,
Financial Success Makes Simple.