|
|
 |
Good Debt Versus Bad Debt
Yes, there is such a thing as good debt.
Not all debt is bad. Even though you might consider it to be so when you
face the overwhelming amount of debt that you need to repay and the
problems that it has caused, at a certain level it is worthwhile having
debt.
Having debt on appreciating assets such as a mortgage on your home can
be a good thing. The value of your house will be increasing at a rate
that is far greater than the amount of money that you could save. And
quite possibly you would never be able to save the amount of money
required to purchase a house in the first place.
Examples of Good Debt
There are only a few types of debt that fall into this category, but
it’s important to make the distinction. Some examples of this debt are:
-
Debt incurred to buy a home. Owning your own home is considered a good debt is because
it is an investment -- it gains value instead of losing it.
- Student loans. Getting a college education is a good investment as
well. By earning a degree, you put yourself in a position to earn more
money over your lifetime.
- Debt associated with starting a business. Starting your own business
can be a risky proposition, but it’s done with the intention of earning
money.
Examples of bad debt
Bad debt is the debt that is incurred for purchasing
items that are not appreciating assets. This will be the
type of debt that is not worthwhile having simply because the costs of
the debt far outweigh its advantages. Here are a few:
-
Auto loans. Having a car is a necessity for many, but a car loan is
bad debt because an automobile loses value over time rather than gaining
it. You will not recover
your investment when you sell it.
- Credit card debt. Credit cards are bad debt
because the
overwhelming majority of credit card purchases are things that lose
value.
- Most personal loans. Personal loans are often taken out to finance
purchases of things such as appliances, furniture, and vacations. None
of these things appreciate in value, so they are bad debt.
Should You Avoid Having Bad Debts?
Just because a debt is good, that doesn’t mean it can’t
get you into trouble. You still need to keep this debt at a
manageable level and don't borrow more than you can comfortably
pay back.
On the other hand, you do not need to avoid having bad debt.
There’s no harm in taking on some bad debt to get the things you need and
want. But make sure that you only use it
for things you really need.
Credit cards are one of the biggest causes of financial problems in the
country. But they too can help you rebuild your credit history if you
take out smaller amounts of borrowings and pay them back on time all the
time. In the long run you'll have the opportunity to get a mortgage to
purchase a house again even if you have bad credit history.
So in the right circumstances there are various reasons
why debt can help improve your life. But racking up restaurant bills and
purchases of the latest fashion items on your credit card are not good debt in anyone's books.
Back from Good Debt to Debt Firms
Home
|
 |
|
 |
