Wednesday, December 23, 2015

Thoughts about debt as we move to the end of the season of giving.

Rule No. 1: Never take on debt that you do not have the income to pay off.

It sounds simple, right. Yet every day thousands of us buy products, we think we need and pay for them with credit cards that we may someday pay off--(we hope)

Much of the mortgage crisis came thanks to home buyers with budgets dependent on rising incomes to pay the bills. Now it is home buyers who hope that interest rates do not go up too quickly. They took on a loan with no concrete way to pay it back and the banks were happy to give the loans.

Rule No. 2: Do not borrow money for assets that do not produce income or have any chance of appreciation.

This is why I urge you to understand that mortgages are not bad and yet car loans should be despised. It is also, why credit cards should be used wisely. Household debt is rising and I think that the real crisis is that most folks do not understand why this situation is so dangerous and, more importantly, how to protect themselves.

So during the joyous season, I hope that you have thought before indulging in a frenzy of spending that you will regret come January when the Credit Card bills come due.

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