Knowing Bad Credit

Any debt with interest rate above 10% and offering no tax incentive can be broadly considered an improper or bad credit. Loans like home mortgage loan and student or education loan come under the category of good credit since the assets created out of such borrowed funds appreciate in value as a rule.Automobile loans although come at low interest cannot be considered good credit in the strict sense of the term since automobiles hardly ever appreciate in value. Every other loan starting from credit card to other high interest loans falls under the category of bad credit.

Too Many Credit Cards?

Having too many credit cards is a certain harbinger of the evil called bad debt. One should use only the card with the lowest interest tag and that too only in emergencies.

Paying Bad Debt Bills

The endeavor should be to make at least the minimum monthly payments against all such bills with efforts to make additional payments over and above the minimum against loans where the outstanding balance is higher so as to bring down the higher bad debt earlier.This has to be made possible either by increasing income or reducing expenses. Loans carrying higher rate of interest should be targeted with priority for liquidation with such additional payments above the stipulated minimum. Bargaining with the creditor to lower interest rate wherever this rate is higher than 14% annually is a very important step for bringing down outgo towards repayment of bad credits.

Secured Credits

Bad debts can be both secured and unsecured. While the unsecured bad credits normally carry a higher interest tag and should be paid off with priority, one has to be careful not to do that at the cost of missing the minimum repayments for such secured debts as mortgage or automobile loans where the asset is pledged with the creditor.A few defaults in paying the minimum installments on these loans may result in seizure of the asset in terms of the agreement executed by the debtor with the lender Bank.