Borrowing money to cover some of those bigger expenses can make sense in the short-term but that debt load can do more damage than good. Buying things on credit - whether it's for an emergency, a pressing "want" or just to catch up on bills - can be a dangerous habit that leads to a full-blown debt addiction. CreditCards.com reports that the average credit card debt per household is just under $15,800. Credit card debt is usually one of the most harmful types of debt you can carry - and yes, there is such a thing as "good debt".
Here are the five types of debt that hurt you the most:
- The credit card-supported vacation. A vacation might be considered an experience and not a thing you've purchased, it's not a purchase that will appreciate in value. Even though you might be investing in your health by taking a stress break, the only way you can truly justify this purchase is if you can make up the value of that vacation (plus interest) by working harder when you get back. The value of that vacation on your credit card is completely lost after those few days away. And, you'll be paying interest on that premium purchase.
- Short-term loans. Higher-than-average interest rates and incredibly high fees on those payday loans and short-term loans make these another dangerous money move. That money is coming to you at a very high price - and a price very few people can afford to pay within a reasonable amount of time.
- Car loans. Buying a car with an auto loan form the bank seems innocent enough, until you factor in the cost of a depreciating vehicle and the amount of time it will actually take for you to pay off that loan in full. Even with reasonable interest rates, a car loan is just another way of leasing a vehicle. The value of your car will probably depreciate faster over the life of your loan. Avoid taking out a car loan for more than you can really afford and always consider the depreciated value of the vehicle at the end of the loan term.
- Gas credit card purchases. While racking up points or cash back rewards on the gas card can help you save some cash in the short-term, accumulating a balance on that card means you're still fueling a debt habit. Few people pay off their gas card balances in full every single month to gain any real benefit from carrying one. Unless you're very good at paying off the card consistently, avoid charging your gas purchases and just pay as you go.
- Food on credit. Whether you're charging groceries or dining out expenses, using your credit card to pay for food is a red flag that you're spending more than you can afford. Go back to your budget to make sure you've set aside a realistic amount of money for food-related expenses. Remember you're paying more than just the charged amount for those meals and groceries every month you carry a balance forward.
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