How to Know When Debt is a Four Letter Word

MMI Offers Tips for Avoiding and Reducing Bad Debt

SUGAR LAND, Texas, Oct. 17, 2012 /PRNewswire-USNewswire/ -- Debt is a four letter word. For many people it has the same connotation as many other four letter words. However, not all debt is bad.  For example, most people could not afford to pay cash for a home, but instead must acquire a mortgage loan. Because a home will most likely increase in value during the time it takes to pay off the mortgage, mortgage debt is considered a good investment. In general terms good debt is defined as debt that allows someone to invest in the future such as business loans, student loans, mortgages and real estate loans.

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Bad debt is generally defined as debt acquired for something that immediately loses value or has no potential to increase in value. Using that definition, a car loan would be considered bad debt. Many people purchase vehicles and are upside down (owe more than the car is worth) in their loans mere months after purchasing. It is also a common practice to purchase a meal with a credit card that has a balance that may not get paid off for three months or more. The meal that was enjoyed at the time and forgotten later ends up costing more because it is not paid for when consumed. Paying interest for dinner, even a nice dinner, charged to a credit card is bad debt.

Money Management International (MMI) offers the following tips to avoid and reduce bad debt:

• Don't carry balances on your credit cards. If you do purchase something that cannot be paid off at the end of the month, make certain you can pay it off in 90 days or less.
• Purchase a used or less expensive new vehicle and make sure you make a substantial down payment. A smaller loan will help assure you do not become upside down in your auto loan.
• Don't use credit cards to purchase clothing or consumables unless you will be paying the balance off each month.
• Be wary of spending more than you can pay off each month on rewards credit cards. Paying interest charges will negate the promised benefit of the rewards.

For consumers who have more bad debt than they can handle, certified credit counselors are available at MMI to help develop a plan to pay off the debt and avoid future bad debt.

About Money Management International 
Money Management International is a nonprofit, full-service credit-counseling agency, providing confidential financial guidance, financial education, counseling and debt management assistance to consumers since 1958. MMI helps consumers trim their expenses, develop a spending plan and repay debts. Counseling is available by appointment in branch offices and 24/7 by telephone and Internet. To learn more, visit MoneyManagement.org or call 800.432.7310.

CONTACT:
Tanisha Warner
Media Relations
713.394.3202
[email protected]

SOURCE Money Management International