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Is it true that there is good debt and bad debt, and how can that help me avoid bankruptcy?

 

It is a common belief that there is good debt and bad debt. Conventional wisdom states that good debt is debt used to buy an asset, such as mortgage debt. Since the house will increase in value, the debt has helped you increase your net worth, and therefore it is good debt.

Bad debt is debt incurred to purchase things that decrease in value, which probably everything you purchase with a credit card. You end up repaying the debt long after the vacation, or whatever, is gone, and therefore that is bad debt.

But is this true? Does good debt and bad debt really exist?

It is true that credit card debt is almost never good debt. It carries a high interest rate, and will only get you into trouble, possibly leading to personal bankruptcy. However, you should not assume that mortgage debt is good debt just because you are buying a house. If you borrow against your house you may be digging yourself deep into a financial hole, so mortgage debt can be bad debt.

If you take our a second mortgage to go on a vacation, that is not good debt. If you buy a house that is bigger than you can afford, that is bad debt.

So be careful. Whenever you borrow, ask yourself if you are borrowing for a good reason, and make sure you can pay it off, because if you are not careful, good debt can easily become very bad debt.

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Posted by Editor Bankruptcy Alternatives @ 12:58 am
 

How can I Research my Bankruptcy Alternatives?

 

As readers of this blog know, we are big proponents of considering all of your bankruptcy alternatives before making a decision. What’s the best way to do that? We recommend a three step plan.

First, make an inventory of where you are at. Who do you owe money to? What do you own? How much money is available from your personal budget each month to repay your debts?

Second, with this information, make a list of your bankruptcy alternatives. Can you deal with your debts on your own? If you can cut expenses or increase your income, that may be your best alternative. Can you get a debt consolidation loan to lower the interest you pay and repay your debts? Or do you need to consider a more formal solution, such as a Chapter 13 Wage Earner Plan or a consumer proposal? With these alternatives in mind, research your options. For example, residents of Kitchener, Ontario can read about bankruptcy alternatives in Kitchener; there are many similar web sites for residents of other places in North America. The bankruptcy America blog is a great resource.

Third, once you have researched your options, make a plan. Decide on which bankruptcy alternative is right for you. Then, do it. A plan is of no value if you don’t get started now with your plan. You have alternatives, but they can only help you avoid bankruptcy if you research, plan, and act.

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Posted by Editor Bankruptcy Alternatives @ 8:06 pm
 

 


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