Avoiding your own credit debt

July 20, 2011 2:16:55 PM PDT
The nation has maxed out its credit cards, and payment is due on August second. This is a popular analogy for what is happening in Washington, and is similar to the situation that plays out in many households. Although for many, raising a debt ceiling isn't an option on the kitchen table. However, experts say that debt doesn't have to be a bad thing.

People should not uniformly and in a knee-jerk way say, "I don't want any debt." This doesn't mean you have to borrow the money, but it should be available to you if you have a need for it. Not maxing out credit is the key, but being in a position to borrow if emergency strikes is also key; this position you can stake by knowing the good debt from the bad.

Bad debt is debt that either you are using for something that's going to lose value right away or that you do not really need. So if debt and unpaid bills from weekend shopping sprees wreck your credit, and prevent you from getting a mortgage, that's bad. At the end of the day, you want your credit report to be a resume, not a rap sheet.

You should also manage deficit versus debt - what you need to pay out shouldn't be more than what you are bringing in. Try not to bridge any gaps with extra credit. If you know the interest rate that you owe on each and every debt, you should pay off the most expensive first.

Make sure your good debt stays good, and you limit the amount of bad debt you have. This shows that you are a responsible credit consumer.