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How to go into debts in a smart way

Debt can be good or bad depending on what results after you take it. For example, if you take a loan to go back to college the debt may be good if after your graduation you get a better job, but the debt can be bad if after graduation you remain jobless.

A person who leverages a loan to buy an asset can benefit from it as he/she repays the loan unlike a person who may be uses his credit card to put gas in the car. But putting gas in the car may also not be a bad debt depending on what you do with the car.

It can be seen that the line between the good and the bad debts seem to be blurred. The following guidelines can assist you in getting good debts:

Plan well for the debt
Do not take a debt blindly. You need to plan carefully. Here are some numbers that might be of help to you before you decide to borrow.

Know the cost of the debt
List all your credit cards and their interest rates. Check which issuer offers low-rate balance transfers. The aim here is to ensure you borrow at the lowest cost.

Know your credit limits
Know the credit limit of each account and also your current balances. It is advisable not to use more than 25 percent of your credit limits. This is because balances above that percentage with lower your credit score.

Check your credit score
Before you borrow you need to check your credit scores. If your credit score is low it may not be easy for you to get a low-rate loan. So, try to maintain high credit score. If your credit score is low because you have unpaid loans, you better stop borrowing and concentrate on repaying the loan first.

If you have lost your job you may be having some savings that you can fall back to but they may not be able to stretch far enough. This may force you to turn to loans or your credit cards just to put food on the table or gas in your car as you hunt for another job.

The problem is that it may be impossible for you to get a loan a good rate if you are not employed so you will be forced to work with the credit that you already have.

In case you have a choice, go for unsecured debt rather than secured debt. This is because in case you are unable to repay the loan you will not put your collateral at risk.

It is also advisable to borrow rather than to withdraw money from your retirement account. If you withdraw from your retirement account you will have to pay taxes and at the same time pay the early withdrawal penalty.

And if you are going to college make sure you learn as much as possible about how student loans work. It is also advisable to fill the FAFSA as soon as possible since there are some aid available to students on first-come-first-served basis.

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