In Step #2 we discussed the difference between good and bad debt. Back when I was in debt $60,000 I thought all debt was bad. I just didn't want to see another credit card bill ever again. But there is actually good debt such as a mortgage for a home or student loan so that you can earn a degree to hopefully make more money.
Step #8
So some debts or good, but what other types of debt are considered good or preferred debt? There are basically two types debt: the unsecured and the secured. Unsecured debts are debts that are not backed by any type of collateral. Since there are no strings tied to the unsecured loans, by strings I mean no assets, they are a bigger risk for lenders and therefore they charge a higher rate of interest for them. Personal loans and credit cards are examples of unsecured debt.
On the flip side, secured debts are backed by collateral, which is less risky for lenders. In turn they charge a lower rate of interest for a loan. Home mortgages and car loans are the most common secured debts.
Unsecured debts also generally have a variable interest rate. When I was neck high in debt, lenders were raising my rates and making things more difficult for me. To me it is illogical for banks to do that unless borrowers are not paying their bills on time, but I had always paid mine on time. The new credit card reform act will help put an end to that beginning December 1, 2009.
Have lenders been jacking up your interest rates for no reason before the new law goes into effect? Lets hear from you.
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