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CREDIT CARD DEBTS – Good or bad ?
Here ’ s the thing . Credit card debts are neither good nor bad . It ’ s just money that one has borrowed . And assessing any borrowed money , rationally , to my mind , is all about weighing how much it costs vs . what benefits it gives you . Simple . Nothing more nothing less . So , I disagree with the created over-hype regarding credit card debts being bad debts . We need not put any moral judgment on any debt because of the form it takes . We should know that it ’ s borrowed money and then do what we have to with it accordingly .
SO CAN CREDIT CARD DEBTS BE ‘ GOOD ’ TOO ?
Yes , it most certainly can ! There are examples of numerous families who have taken up huge credit card debts but managed it and rotated it all perfectly well to achieve what they wanted . For example , I know of one such young family where the earning man wanted to go back to studies and do full time MBA but already had a wife and a kid to take care of . He went back to
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his studies and his wife diligently rotated the household expenses across multiple low interest credit cards . Later on , my friend completed the degree and got a much higher paying job and was able to pay off the credit card debts in full . So you see , if you assess the cost and the benefits of this particular credit card debt , it was a good debt , wasn ’ t ‘ it ? I refuse to look at it as a bad debt merely because the debt was on a credit card . Hence , there ’ s no need to pay off your credit card debt in a hurry . But what you do need to analyze however , is what the debt is for … do you actually need it , is it for a long term benefit ? As I mentioned , credit card debt is neither good or bad , the main focus should be on whether it is at all helping you or not .
THE WRONG QUESTION – Is the debt good or bad ?
This moralistic question on debts according to me is fundamentally not correct . For example , mortgage is usually known as a good debt . But rationally speaking , all mortgages might not be good at all . If someone borrows too much for a house that he / she cannot really afford , it can be hugely detrimental to his savings . Moreover , if the price of the house drops for some reason , then you are gone . You would owe more than your house is
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worth . Similarly , tagging all credit card debts as bad and assuming that they all come with high interest rates and low benefits are being too simplistic . There are many cards which come with zero interest in promotional periods as well as single digit percentage rate per annum .
THE RIGHT QUESTION – Is the debt helping you ?
This I feel is the right question to ask yourself when it comes to debts and while calculating which ones to pay off in a hurry . For example , a person might have taken a credit card debt as mentioned above for starting a family business , renovating your house that you would sell at a higher price , or like my friend , to get a higher academic degree , all of which would benefit him / her in future . There can be many cards which can give you a loan , the peak interest rates of which are lower than personal loan interest rates . So these factors need to be assessed in detail and the prime question of whether the debt is helping you or not is to be answered . If a credit card debt is helping me , then why not ?
THE RIGHT OBJECTIVE – Keep your cost of borrowing to a minimum
Once you have asked the previous question , your
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sole purpose should be to minimize your cost of borrowing . It ’ s crucial to put your debt to good use and get the most out of our borrowed money , credit card debt or otherwise . The three pointers that you should always keep in mind are :
Interest Rate : Look for zero percentage interest rate offers on promotional periods and keep a track regarding when the promotional period ends .
Fees : While transferring funds usually there is a fees that is charged . Keep note of these and the period of time duration or no of transfers , etc factors that the fee can depend on .
Balances : Needless to say keep your credit card debt balance as low as possible and borrow only that you need
To conclude it can be said that everyone has his / her own style or strategy to taking on and paying off debt . Make sure the minimum balances are paid each month and make higher payments on the cards having higher interest rates . Most importantly , respect the credit card debt – borrow only when you have purpose and only when you need to and if it benefits you and you can work out a minimum cost strategy to it , there is no need to hurry and pay it off .
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