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Distinguishing between good and bad debt

Arkansas residents who are thinking about bankruptcy may be interested in some information regarding different types of debt. At a time when the average U.S. household with one or more credit cards has more than $15,000 in credit card debt and the numbers of individual bankruptcies are higher than ever, it can be surprising to learn that some debt is actually good to have. These "good debts" include things that are necessary but can't be paid for in full up front, such as a home or education. As long as the monthly payments are affordable, these debts can be acceptable.

However, "bad debts" include things that are paid for on borrowed money and aren't really necessary, such as vacations. Credit card debt, for instance, often carries with it a large interest rate, putting it squarely in the "bad" category. Having an idea of whether debt is good or bad can help a person to manage their money wisely.

Experts believe that, in general, people should carry a debt load that results in monthly payments of less than 36 percent of their monthly income. This includes a home mortgage, credit cards and other long-term debts. Keeping debt levels this low can help a person attract home mortgage lenders and other creditors when borrowing is needed.

Understanding what to do when debt is overwhelming and creditor harassment has begun can be difficult without professional assistance. An attorney with experience in bankruptcy law and debt management may be able to assist with a person's debt relief efforts. This can include filing for bankruptcy or negotiating with creditors in order to end the harassment and begin paying down the debt.

Source: CNN, "Good debt vs. bad debt", December 24, 2014

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