Liablities
Liabilities are simply the bills that you’re obligated to pay. Whether it’s a credit card bill or mortgage payment, a liability is an amount of money you have to pay back eventually. If you don’t keep track of your liabilities, you may end up thinking that you have more money than you really do.
Here are the lists of some common liabilities. Use it as a model, when you list your own. You should list your liablities according to how soon you need to pay tem. Credit card balances tend to be short-term obligations, while mortgages are long-term.
|
Liabilities |
Amount |
Paying Rate % |
|
Credit Card |
$4000 |
15% |
|
Personal Loans |
$13000 |
10% |
|
Mortgage |
$100000 |
8% |
|
Total liabilities |
$117000 |
|
The first column in the table show the type of debt. Don’t forget to include student loans and auto loans if you have any of these. Never avoid listing a liability because you are embarrassed to see how much you really owe. Be honest with yourself. Doing this helps you improve your financial health.
The second column shows the current value of your liabilities. List the most current balance to see where you stand with your creditors.
The third column reflects how much interest you are paying for carrying that debt. This information is an important reminder about how debt can be wealth zapper. Credit card debt can have an interest rate of 18 percent or more and to add insult to injury, it isn’t even tax deductible. Using a credit card to make even a small purchase cost you if you maintain a balance. Within a year, a $50 sweater at 18 percent costs $59 when you add in the potential interest you pay.
If you compare your liabilities in the table and your personal assets on the table on the last article, you may find opportunities to reduce the amount you pay for interest. Say for example, that you pay 15 percent on credit card balance of $4000 but also have a personal assets of $5000 in a bank saving account that’s earning 2 percent in interest. In that case, you may want to consider taking $4000 out of the saving account to pay off the credit card balance. Doing so saves you $520; the $4000 in the bank was earning only $80 (2% of $4000) while you were paying $600 on credit card balance (15% of $4000)
If you can’t pay off high-interest debt, at least look for ways to minimize the cost of carrying the debt. The most obvious ways include the following:
Replacing high interest cards with low interest cards, Many companies offer incentives to consumers including signing up for cards with favorable rates that can used to pay off high-interest cards.
Replacing unsecured debt with secured debt. Credit card and personal loan are unsecured; therefore they have higher interest rates because this type of debt is considered riskier for the creditor. Sources of secured debt provide you with a means to replace your high-invest debt with lower interest debt. You get lower interest rates with secured debt because it’s less risky for the creditor.
The year 2004 was the eighth consecutive year that personal bankruptcies surpassed the million mark in United Sates. Corporate bankruptcies were also at record levels. Make a diligent effort to control and reduce your debt, or the debt can become too burdensome. If you don’t, you may have to sell your stocks just to stay liquid. Remember, Murphy’s Law states that you will sell your stock at the worst possible moment! Don’t’ go there.
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