scientia
2012-10-12
perceptions of debt
there is this perception that debt is a horrible thing that shouldn't ever be touched. this of course ignores the fact that the foundations of modern life was built with debt. things such as our local and national infrastructure (roads, bridges). my point is that debt is a tool. a lever. it is referred to as leverage when you use it to multiply the effects of your less than adequate assets against something quite substantial such as purchasing a home. before there was such a thing as loans you had to have your family loan you the money. or you go to a loan shark who would lend your the money short terms at usury rates. you can guess that usury does not conjure up the warm fuzzies. at worse you save up for a very long time before you would be able to buy a home outright. with debt it is now possible for you to buy a house based your annual income and credit worthiness. there's no need for collateral.
having said all that, debt like all things should be used moderately and only for those things that are essential and costly. a car is essential. a house is essential if your have a family or plan to start a family. education and career development are essential (especially in our modern world). a motorboat is NOT essential. neither is a swimming pool. if it isn't essential and you still plan to take out a loan for it then ask for a short term loan (five years or less).
2012-07-15
credit card interest rate (how does it work?):
somoone asked me what the interest rate on a credit card or a loan meant. they had the general concept of being charged to borrow money but not the mechanics. off the top of my head to quickly explain, I came up with an answer that's fairly accurate in my mind. it goes something like this: "a 5% annual percentage rate (APR) means being charged $5 for every $100 of the remaining balance of the amount borrowed for every year." i think it was a pretty good first stab, but it can certainly be improved upon. it leaves out the fact how often the interest is accrued (daily, weekly, monthly, etc.). please spread this most basic of financial information so that people who dont' have any clue as to how they're being charged on their credit card know it. it can certainly help to make better financial decisions.