How to manage and know when debt is acceptable

By Amberlee Lovell | Posted - Jan 26th, 2013 @ 10:03am

SALT LAKE CITY — Debt is not the only answer, according to a recent article by Kiplinger. In fact, it should be less of an answer than the average consumer thinks.

Before purchasing with a card or taking out a loan, Erin Burt, financial writer for Kiplinger, said an important question should be asked. Will this purchase appreciate in value?

Some purchases are builders. Others are losers. Builders are worth it and losers need to be dumped, Burt said. Howard Dvorkin, founder of the nonprofit Consolidated Credit Counseling Services, recommends some builders.

"An education enhances your job prospects and allows you to build greater wealth, and a home increases in value over the long term," said Dvorkin in the Kiplinger article.

Items like cars are losers. "It loses value as soon as you drive it off the lot," Dvorkin said.

5 Questions to Ask about Debt:
  1. What is worth going into debt for?
  2. How are we doing with saving now?
  3. What are our future goals?
  4. What can we do without in order to save?
  5. How are we working off debt now?

As interest builds on items that lose, eventually it would have been worth it to save up and buy the item when you have all the money.

"Say you charged $5,000 to your credit card to buy a new TV and sound system," Burt said. "If you make the minimum 4 percent payment each month and the card charges 18 percent interest, it'll take you 12½ years to pay the balance off -- by that time you'll be ready for another TV. Plus, you would have paid an extra $2,900 in interest."

There are cases, Burt said, when going into debt for a loser is unavoidable. If it is something that is needed, not just wanted, a repayment strategy should be planned in advance.

People use four methods to make payments, according to a recent Deseret News article.

Even though debt financing is the quickest way to get what you want or need interest is tacked on, making it, in many cases, a bad financial choice.

Otherwise, families can choose to use grants, save up and set aside, or pay as they go. All are free from debt, but require delayed gratification.

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