Ms. Money Answers Your Good Debt vs. Bad Debt Questions May 22, 2013Expert BlogsOff

I love that so many of you are questioning some of the traditional things that have always been said about good debt vs. bad debt. As I said in an earlier article, I don’t think debt is good or bad, it’s just debt but it can have good or bad consequences based on how you use it.
  
Q: How should people set goals/timelines around paying off school debt? It feels like a mortgage, where it’s hard to see an impact in making normal monthly payments. Is education something that should be paid off over the natural lifespan?
 
A: In most cases, you have some options when it comes to school loans one of which is consolidating them into one payment usually with an interest rate that is lower most other debt so it can be tempting to stretch out the payments as long as possible. However, school debt like any other debt should be paid off as soon as possible. Outstanding loans not only affect your credit score, but they could cause you to be denied credit if it looks like you’re stretching yourself too far financially or cause you to pay higher interest rates if it looks like are a credit risk, and this could cost you a lot of dollars over your lifetime.
 
Q: As I was reading your article, I realized just how much more of a payer-offer I am than my husband. The one thing he has heard though is that it looks good to keep a small balance on your credit card and still just make monthly payments. I, on the other hand, would like the bank statement to say $0.00. Is there any truth to that?
 
A: I think the key here is to have some activity on your cards not necessarily that you keep a balance. In some cases, paying off your balances each month means that you can earn points and/or rewards without having to pay interest on your purchases. However, if you do decide to keep a balance make sure it is less than 30% of total amount of credit you have available, and if you can manage it, using less than 10% is even better. For example, if you have a total credit limit of $10,000 on all of your cards, having a balance of less than $3,000 is good and a balance of $1,000 or less is even better.
 
Q: Is there a way to purchase say a less expensive car with this car, that has a $450.00 per month payment and owe less over all with a smaller monthly car payment?
 
A: The answer to your question depends to a large degree on the current value of your car, how much you owe on it, and what you want to purchase. Remember, any differences between the value of your car and what you owe will need to be paid in some way. This could mean that the dealer will absorb it and charge you more for the new car or you could absorb any differences and possibly get a deal on a new car. It sounds like you’re really looking for a smaller monthly payment so another option you may want to consider is refinancing your loan. In either case, start the process by doing some homework. Look up the value of your car at Kelly Blue Book (www.kbb.com).  Review your loan papers to make sure there are no prepayment penalties and the amount you owe. Next, look at what a new car would cost and also look for rebates, etc that might help with the financing. Armed with this information, you can begin to talk with dealers to see if they have options that will work for you.
 
 
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