Debt has become almost a way of life for most Americans, as they use credit cards and take out loans to make purchases they otherwise couldn’t afford. Personal debt is increasing, and credit has never been easier to get. Used intelligently, credit allows us to build wealth through making investments, buying a home or business, or paying for college. However, if used incorrectly, debt often leads to financial problems and credit that is ruined.
The skilled and seasoned Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer understand that even the most well-intentioned people can find themselves in a financial hole. We offer a free consultation to evaluate your situation. We can help by looking at your debts, your income, and your goals and coming up with a plan that’s best for you.
Debt is an amount of money borrowed by one party from another. Debt gives the borrowing party money that is to be paid back later, usually with interest. The most common forms of debt are loans, often mortgages and auto loans, and credit card debt. The borrower agrees to repay the balance of the loan by a certain date, at a certain amount of interest. If the debt is through credit cards, its amount is limited by the company and the repayment date is open-ended, as you can pay off the entire balance or just a minimum amount. Credit card interest rates on unpaid balances can be high, as much as 18 to 20 percent.
To avoid getting into a financial hole, it’s important to differentiate between good debt and bad debt.
What is Good Debt?
When used intelligently, debt can help build wealth. Good debt creates value; for example, student loans, real estate loans, home mortgages and business loans. A mortgage can lead to owning a home with increased market value, and a student loan can lead to a degree that leads to a good job that pays the bills. Even some home equity or credit card consolidation loans can be good debts — if they decrease the money you owe by reducing the interest rates.
But debts can remain “good” only if you are able to meet the payments. According to Equifax, your payment history is the largest factor that influences your credit score—accounting for about 35 percent of your score. Keeping up with your payments can help you raise your credit score over time, but missing them will lower your score. This means you need to make intelligent decisions about how much and what kind of debt you can take on.
Unfortunately, debts that start out as good can sometimes turn out bad. Educational loans don’t guarantee a successful career, and large ones can be difficult to pay back. Housing markets can crash and mortgages can go underwater, leaving you owing more on your house than it is worth. Businesses can fail or go bankrupt.
What is bad debt?
Bad debt is any debt you take on to fund a lifestyle you can’t afford; debt that causes you to overextend yourself or fall behind on your payments; debt that you take on to buy something that goes down in value; and debt that causes you to sacrifice long-term financial health for short-term gratification.
Bad debt often arises from buying items using high-interest credit cards and not paying the balance in full. A soon as you buy consumable items such as clothes or food, they immediately decrease in value. By purchasing them on credit and only making a partial payment on your credit account, the amount you are paying for these items continues to increase and you keep building more bad debt.
Equifax points out that debt that uses up too much of your available credit can also be considered bad debt. If you carry a balance of more than 30 percent of your credit limit, lenders may consider it excessive debt and view you less favorably.
How to Turn Bad Debt Into Good
If you’ve been racking up bad debt, you need to get your credit accounts under control and to improve your creditworthiness. You can help do this by:
- minimizing the amount of new debt by using current credit responsibly and only charging what you can pay off readily
- paying off your current debt gradually over time
- applying for new credit only when necessary
- creating a budget to pay down your debt and sticking to it.
Even the most responsible efforts to control debt can sometimes go wrong, and people can be hit by unforeseen circumstances such as medical or divorce expenses that become overwhelming. There are times you need a helping hand and may need to consider bankruptcy as a way to get relief from debts and get a fresh financial start.
The experienced and compassionate Ohio debt relief attorneys at Fesenmyer Cousino Weinzimmer offer a free consultation to evaluate your entire financial situation. We will examine your income, your debts and your goals and we will discuss the best fit for you. We will make sure you are aware of all your options and help you decide on the path to a brighter future that makes sense in your individual case. We understand what you are going through and will handle every phase of the process, including getting creditors to stop attempting to collect on unpaid bills.
Delaying can only worsen your situation, so call the Ohio bankruptcy attorneys at Fesenmyer Cousino Weinzimmer today! Call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email for your free consultation so we can determine what debt relief solutions will work best for you.