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Are there Fixed Rates for Bad Debt LoansHave you ever wondered why your credit card debt doesn’t go down, even after paying so much month after month, where as your mortgage amount is already at the verge of completion? Well I’m sure the answer is yes. This is one situation where most of us often find stuck, and it would be a blessing in disguise if we find ourselves out of credit card debt.
Most of us opt for credit cards with a greed to purchase more stuff, and then pay it off in easy installments, but we fail to realize that these cards charge interest on the principal amount, which is quite high than you would be charged on your mortgage. Unlike mortgage, the amount swiped using the card is not even tax deductible, and that’s one reason why credit card debt is often referred as bad debt, where as mortgage is considered to be good debt. Let’s look at difference between credit card debt and mortgage:
Credit cards are of variable interest rates, they go up and down depending on different factors. These card companies calculate the interest amount on simple interest basis. Often times you might find that your credit card company offers an interest rate of 8-9% when you apply for the card, and it goes on pretty well for the first couple of months or probably for a year, and then slowly and steadily they increase the rate anywhere between 17-20%, where as a reasonable interest rate in anywhere between 5-11%. If in any case you skip paying a months interest, then they can even raise your interest rate, which means, at the end of the day, you would find that the amount deducted from the principal amount in a year is measly 5-8% of the total amount and the rest of the amount is gone towards paying the interest. So, it is always advisable that we do not fall in the trap of any introductory scam, and have detailed information on how the credit card debt works before you find yourself in any big financial crisis.
Now, when we consider mortgage, it is a fixed rate loan. Fixed rate loans can be defined as those loans where the principal amount and the interest % do not change over the life of the loan. They are better, especially when interest rates are rising higher and higher year by year. Most of the home and car loans fall into the category of fixed rate loan. These loans are the best choice for consumers who have fixed monthly income, and the ones who need control over their spending and savings.
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