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What is bad debt management?

Some bad debt management signals are the following:

You don´t know how much represent your installments respect your income.

Usually lenders use a ratio of 30% to determine how much debt you have. For instance, if you earn $100 then all the installments from all your loans shouldn't exceed $30. This is because the other $70 is supposed to be used for everyday expenditures.

You don't know the interest rate you are paying on each of your loans.

Think about credit as any product. These are products that financial institutions offer to people to make a profit (a good profit indeed) and therefore are usually marketed with outstanding advantages and "low rates"

Low rates? Good!. But the key questions are: For how long? Low rates compared to what?

Be careful, bad debt management usually begins with a good marketing strategy.

You think that buy now and pay later is smart.

In fact, is not. This is because depending on the interest rate you pay, if you borrow money for a long time you can easily end paying the double of the original price.

Usually you pay your installments late.

This is important not only because your lender may charge you penal interests but because when you pay your installments late the lender apply your installment to cover interests and fees first and the amount remaining (if any) to principal.

If something of the above sounds familiar to you maybe you need to check this article about what is debt management.

Back from (this page) Bad debt management to (the main page) Debt reduction or Home


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