Wiping Out Your Debt

By: Staff

4 Min Quiz

All debt is bad debt.

Home mortgages and college loans are examples of good debt. Owning a home and having a college degree can pay off in the long term because they generally have lasting value.

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Payday loans target the wealthy, who can afford the 300 to 400 percent interest.

Payday loan centers are often found in low-income areas, where living from paycheck to paycheck and without credit creates a need for cash before payday. Loan centers will hold a check until money is available, charging a high percentage of every dollar to do so.

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Consumer credit card debt is increasing with the employment and financial woes of Americans in recent years.

Though it would seem likely that credit card debt would rise with economic trouble, according to a September 2010 Federal Reserve Board release, it decreased 1.75 percent.

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You have to keep a credit card balance to maintain a good credit rating.

While having a balance and paying it off on time helps establish credit, paying off the card in full each month makes for good history in a credit report. Keeping high balances can even hurt credit ratings.

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Your debt will die with you.

Surviving family members may not have to cover your legacy of credit card spending, but house payments and funeral costs may keep your memory alive in the form of bills and debt collection.

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Paying off personal debt will hurt the economy.

If everyone worked to pay off debt at the same time, spending would decrease, impacting the economy, but individual efforts to spend less and save more are less likely to have national impact. Economically depressed regions where people have no money to spend, however, do hurt economies at the local level.

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Americans need to wipe out debt more than people in other countries.

Worldwide personal debt is on the rise, and governments in Japan, France and the United Kingdom, among others, are stepping in to add regulations related to consumer spending.

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Cutting out a cup of café coffee a day is not enough to make a dent in debt.

Even skipping a $1.50 gas station cup o' Joe each day of the work week could free up $400 a month to put toward your current debt load. Forsaking a $3 specialty drink on business days can save $780 (or 12 $65 payments toward a credit card balance or major purchase).

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Cutting out that same cup of coffee outside of the United States, say, in Moscow, Russia, won’t matter as much.

With the world's most expensive cup of coffee in 2008 -- at more than $10 -- Russians may want to buy a home coffee press and save more than $2,500 per year.

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People in the United States have been saving more money over the last two decades to avoid falling into debt.

Though some data shows that savings are slightly up in one quarter of 2010, historically, savings continues to go down decade after decade, hovering around 6 percent of income in recent years.

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Billionaire Donald Trump declared personal bankruptcy in the 1990s.

Though he owed nearly a billion dollars in debt in the 1990s, The Donald never had to declare personal bankruptcy. He moved holdings around and made sales to pay back the banks.

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Credit card companies in the United States have to let consumers know they are raising rates or adding fees at least 10 days in advance.

The Credit Card Disclosure Accountability Act of 2009 does require that lenders notify consumers before issuing new fees and higher rates, but the notice has to be 45 days in advance.

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Your interest rates on debt will stay the same if you pay on time.

If you lock in an interest rate with a fixed mortgage, it stays the same, but other interest can increase depending on the balances you keep, changes in bank holdings and your spending patterns.

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About 40 percent of Americans spend more than they make.

About 43 percent of people spend more than they make, meaning close to half of all American live outside of their means.

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In Japan, lenders cannot give money to borrowers who have more than a third of yearly income tied into debt already.

Government oversight of lending practices was stepped up in 2010.

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If you are a "valued customer," you will get better offers from lending institutions.

Offers leading to more interest focus on the lender, while notices of lowered or fixed low rates value the customer. You may be valued for the amount of interest you pay a company, and they may return the "favor" by offering to let you skip a payment or borrow more, which creates more interest for you, valued customer.

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Only the rich can buy houses without mortgage payments.

It may be easier for the wealthy, but it is not exclusive to those with big paychecks. Some budget the expense when young to avoid the payments later, and others buy fixer-uppers at very low prices and turn them into lifelong homes.

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It is always a good idea to buy in bulk and to use coupons.

It's not always smart to shop for produce and electronics in the same place. Without discipline, bulk buying centers can lead to more temptation and spending. Coupons also require discipline in buying what you know you will use and enjoy.

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Skipping a mortgage payment each year will help build savings.

Skipping a payment simply adds that payment to the end of your mortgage term, lengthening the time you are paying interest. A skipped payment doesn’t mean skipped interest, and many skipped payments add years and dollars owed.

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Personal debt between friends can be a good thing.

Being indebted to, or grateful for, a friend who keeps you from a bad financial decision is the kind of debt you don’t want to wipe out.

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