Debt—the good, the not-so-good and some help out!

July 26, 2017 | Steve Hasbrooke

Many of us have been there: late at night, staring at a kitchen table covered with bills, then logging into online banking only to find we miscalculated our expenses or had unexpected costs and now don’t have enough money to make the minimum payments. Have you found yourself asking, “How do I get some control over my debt?” There isn’t a one-size-fits-all answer to this question. Fortunately, there are many ways to build a solution that will work with your needs. We each have unique circumstances and challenges in life that can lead to an overwhelming amount of debt. Some of those are self-made while others are out of our control. However, perhaps with a little better understanding of the nature and types of debt, you can avoid this situation entirely or recover from too much debt.

Here is some insight into the different kinds of debt we may incur, both good and bad. Yes, there is such a thing as “good” debt, but please read on before you go out and charge that new 85'' smart TV and home theater you’ve been eyeing.

So, just what is GOOD DEBT? Well, in its most basic definition, good debt is defined as funds you borrow to help you acquire an appreciable asset. The most common example of this is a mortgage loan to assist in the purchase of a home. While data support the theory that houses appreciate in value over time, anyone who lived through the Great Recession knows all too well this is not always the case. During the recession, some housing markets experienced more than a 50% decrease in home values. However, over longer durations of time, the housing market has proven to be appreciable in nature. While the value of the home continues to increase and the balance of the debt used to purchase the home continues to decrease, you are, as a result, increasing your net worth. This is a beneficial form of debt.

To show that you can manage your debt, most lenders require that you have a good credit history to qualify for a Home Loan or Jumbo Loan. You can help establish good credit with credit union Credit Cards or an Auto Loan. If you are currently in the market for your first home or considering selling your current home and moving into a new house in San Diego, contact the Mission Fed Real Estate Team. We can answer your credit and financing questions and get you started on the right path.

That leaves us with NOT-SO-GOOD DEBT. Think of this debt in the opposite context as good debt, where you are financing something that will depreciate in value over time. While there are many examples of this, for the purposes of this post I will focus specifically on credit card debt. If not used wisely, credit card debt can lead to poor money management and feeling overcome with financial responsibilities and balances you can’t afford to pay back. While you work on building or fixing your debt and credit history, a good guide of responsible spending is, if you can’t afford to buy it with cash, you can’t afford to charge it either!

Credit cards can be a wonderfully useful financial tool, when used properly and responsibly. In essence, lenders are offering you an interest-free loan for a short period of time, provided you pay the entirety of your balance in full each and every month. If you do not pay the balance every billing period, you will accrue interest on your balance. Make sure you do your homework and select a credit card with a low or no interest rate, like a Mission Fed Credit Card. And when you combine that benefit with a great rewards program, like Mission Rewards, there is tremendous value to be gained by using your credit card for smart purchases or emergency funds.

To establish a good credit history, you must have discipline, a very clear understanding of what you can and cannot afford and, maybe most importantly, an uncompromising ability to discern need from want. Without knowing your needs and budget, you could find yourself sitting at the kitchen table agonizing over bills.

The way out of DEBT is not easy, but it can be done! In fact, it’s one of the topics we discuss regularly on the Mission Fed Live Smart-Bank Smart Blog. If you’re struggling to keep your head above water or have already began to sink, these articles are for you:

6 Finance Tips to Set Yourself Up for Success: Money management and planning early on go a long way in giving you financial freedom and comfort in the future.

Make an action plan to pay off your credit cards-here’s how:

  1. Organize your expenses and make an action plan.
  2. Get creative with your payment schedule.
  3. Pay more of your balance when you can.
  4. Simplify your credit card debt by consolidating.

Mission Fed also provides online tools! Use these credit calculators to help you take control of your personal debt:

If you need more assistance, make an appointment or stop by any of our 33 branches. Our knowledgeable representatives are waiting to help you reach your financial goals—like building or managing your credit.

The content provided in this blog consists of the opinions and ideas of the author alone and should be used for informational purposes only. Mission Federal Credit Union disclaims any liability for decisions you make based on the information provided. References to any specific commercial products, processes, or services, or the use of any trade, firm, or corporation name in this article by Mission Federal Credit Union is for the information and convenience of its readers and does not constitute endorsement, control or warranty by Mission Federal Credit Union.

Steve Hasbrooke

Steve Hasbrooke

Steve Hasbrooke is VP Controller at Mission Federal Credit Union. He has been with Mission Fed for over 12 years, and his primary responsibilities include regulatory reporting, annual financial reporting and accounting oversight.

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