Friday, October 22, 2010
Many people often ask the question: “How can I live a comfortable life, stick to my budget and still get ahead?” While there are certainly a number of ways to go about doing so, and even more ideas on how to stick to a budget, there is one thing that costs Americans more money than anything else: debt. There are “good” kinds of debt and there are “bad” kinds of debt; it’s these bad debts that often cause the most heartache, strife and struggle.
With the housing market crisis, the downturn in the economy, lost jobs and struggle for many American families, there is bound to be a spike in debt? But why should it be this way? Have we all forgotten how to live responsibly? Do we not realize how much debt truly costs?
Owning a home is a great thing, and often considered the American dream. But trying to buy more house than you can afford is not a smart endeavor. While owning a home can be considered “good debt”, you must be able to afford it. When you do choose to buy a home, be sure to compare the mortgages that are available. Sub-prime loans, balloon loans and adjustable rate mortgages are all very enticing at first glance. They each, in their own way, help to offer lower monthly payments to attract more buyers. But they also have numerous negative side effects that can lead to default loans, foreclosure and even bankruptcy if not properly managed. Educate yourself as this can be expensive debt to carry if not done right.
If you do decide to buy a home, be prepared to make a sufficient enough down payment to avoid private mortgage insurance. This fee, added to monthly mortgages, helps the bank ensure they will get repaid should you default on your loan. It is often added in instances where lower down payments are made.
Credit cards are another great source of debt in this country. Sure, it’s easy to “buy now and pay later”; if the card’s balance is not paid off each month the “real cost” of owning those goods just went up in a big way. Some credit card companies will add interest rates of up to 25%; this means that an item purchased for $10.00 on a credit card could now cost you $12.50! This kind of debt will continue to mount and pile up as the next month’s interest will add on top of the balance. Find ways to get out of credit card debt to help lower your total expenditures each month. When you only pay the minimum balance each month, you’re expressing a major sign of concern.
A number of people believe that their credit score is just a “number” that exists out there in space. The reality is that this score affects almost every aspect of your life, especially when you need to borrow money. The lower your credit score, the higher the interest rate you may pay to buy a car, home or secure an equity line of credit. Keep an eye on your credit score and make sure you’re not heading down a path that will inevitably cost you in the long run.
One last piece of advice: if you don’t know how much debt you currently have, it could be time to seek assistance. Ignoring debt and letting it go by the wayside will not help you be healthy, wealthy or wise. Pay attention, develop a plan to live within your means and move towards a sustainable living situation.
Shea Whitmire is the President of Whitmire Homes, a Georgia custom home builder. The Whitmire family has been building custom homes for more than 30 years and has a proven track record of helping people find a way to make their dream home a reality.