Debt could be either good or bad depending on the intentions of the debtor. For example, a mortgage loan that has a payment within 36 percent of the borrower’s monthly income would be a good debt. On the other hand, if the payment on a New Mexico property is more than a third of the homeowner’s income, they are more likely to struggle financially.
When deciding whether to take on new debt, families should determine whether it will help them improve their financial well being or make their lives more difficult. Using credit to purchase discretionary items like clothing or a vacation may make a person feel better about themselves temporarily but repaying the debt could lead to financial hardship. Taking on more than one of these high-interest debts could make it more challenging to recover without debt relief assistance.
High-interest credit cards, personals loans for purposes other than to consolidate credit cards and payday loans are all types of bad debts. These types of debts may be difficult to repay because their interest rates are higher than average. Because they typically aren’t used to improve a person’s financial situation, they often only succeed in making it worse. Anyone struggling with bad debts should seek assistance sooner rather than later. The longer these debts linger, the deeper a borrower could get into debt.
An attorney who focuses on debt relief may help a person with a lot of bad debt explore their options. For many debtors, Chapter 13 bankruptcy is the ideal solution. For others, debt consolidation or credit counseling might be just as effective. An experienced attorney may explain the pros and cons of each option so that the client can select the solution that is most likely to improve their financial state.