What kind of debt is a car loan

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Here is a list of our partners who offer products that we have affiliate links for. Are you sure you want to rest your choices? Lenders may set restrictions on the type of car you can buy, such as cars that are older than 10 years. Take action: Refinancing or trading in an unaffordable car can help you manage car expenses. Expensive debts that drag down your financial situation are considered bad debt. Examples include debts with high or variable interest rates, especially when used for discretionary expenses or things that lose value.

Sometimes, bad debts are just good debts gone awry. Credit card debt is an example of this: If you have a high-interest credit card and pay off your balance each month, no problem. But if high-interest credit card debt builds up, you could be in trouble. Take action: If you can keep your spending under control, try out the debt snowball method , where you pay off your smallest debts first.

Otherwise, a debt management plan from a nonprofit credit counseling agency might be a good option. Taking on debt for expenses like a vacation or new clothes can be an expensive habit. Guideline: Personal loans can be a good option if you have a specific goal in mind, such as consolidating debt.

These are short-term, small-amount loans meant to be repaid with your next paycheck. Guideline: Financial experts caution against payday loans because borrowers can easily fall into a debt cycle. Take action: Consider alternatives such as borrowing from a credit union or asking family members for help.

Debt could also be considered "bad" when it negatively impacts credit scores -- when you carry a lot of debt or when you're using much of the credit available to you a high debt to credit ratio. Credit cards , particularly cards with a high interest rate, are a typical example. High-interest loans -- which could include payday loans or unsecured personal loans -- can be considered bad debt, as the high interest payments can be difficult for the borrower to pay back, often putting them in a worse financial situation.

Try to keep your debt to credit ratio the ratio of how much you owe compared to the total amount of credit available to you as low as possible to avoid being viewed as a risky borrower by lenders. Focus on paying the debt you have and restrict new purchases. Knowledge Center.

Good Debt vs. Bad Debt. Reading time: 3 minutes Highlights: Some types of debt can be advantageous if managed responsibly "Bad debt" can be any debt you're unable to repay Learn steps you can take to avoid bad debt Did you know there actually can be such a thing as good debt?