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Personal Finances / Credit Cards and Consumer Debt


Subject:  Re: The Plan Date:  1/28/2014  9:27 PM
Author:  joelcorley Number:  307756 of 312159


You wrote, I really hate that I have the credit card debt. The loan...well, that was for something that I felt good about.

Many people associate debt with the thing that was acquired with the proceeds. It's fuzzy thinking and its wrong.

A debt is a debt regardless of how it was acquired. Neither good nor bad. The only measures of a debt are the terms. The most important term is usually the interest rate. Other important terms may include tax deductibility, promotional periods, variability of the rate, whether it was secured by property and whether the loan is one-time or a revolving line of credit. Except for the tax issue, these other terms affect risk associated with the loan and are features you can use to discount (or add a premium to) the cost of that loan. Most such risks (and the tax savings) have subjective value, meaning their value will vary by the situation the individual is in.

However for a rough comparisons, interest rate is usually good enough. Only when rates are similar do these other terms tend to become important. This is true even when comparing credit cards, personal loans, car loans and mortgages. They're all just debt.

- Joel
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