A Better Way to Manage Your Everyday Money - Book - Page 225
Chapter 12: Debt
A day-to-day financial management scheme is probably going to include some form of debt.
Making purchases against future income, when used correctly, is a viable option for making both
large and small purchases. The key to using debt to achieve financial goals is keeping the
servicing of your debt load (the total amount of debt payments) within comfortable limits. Only
you can define your comfortable debt load limits.
Levels of personal debt
Personal debt generally falls into three categories or levels: long-term, short-term, and
convenience
Long-term debt
Long-term debt is typically a 30-year loan that is used to purchase a primary residence. There are
other loans that may fit in this category, but a home is the largest purchase most of us will ever
make. Even for people who have sufficient resources to pay cash for a house, having a mortgage
is considered by many as an advantage for:
● Helping build a good credit rating, and
● Taking advantage of the income tax deduction for mortgage interest.
Short-term debt
Short-term debt typically lasts one to seven years and is used to
purchase big ticket items such as:
●
●
●
●
Automobiles
Furniture
Recreation vehicles and equipment
Swimming pools
These are the items that get us mobile, make our house a home, and
are just plain fun.
215
