Here Is The Real Difference Between Good Debt And Debt
When we talked about good or bad debt, we are simply referring to the difference in the reason why a debt was incured.
When you wanna know whether a debt is good or bad, means you have to know if the debt is having a future benefit or opportunity for something bigger or it will be a future problem
To understand better what we meant as the good debt or bad debt, we will looked into what it means to have a good debt and what it means to have bad debt.
WHAT IT MEANS TO HAVE A GOOD DEBT.
A good debt is a kind of a debt incur for future benefits and positive expectations. Even though a debt is a debt, some debt outcomes maybe a for a better and positive future results than others.
The good part of debt, is when the debt is targeted at building your self or for increasing the power of your earnings as in business related and all.
The following are examples of what we termed good debts
Education maybe a source of a good earning in the future. Although most students loan taking are always very difficult for borrowers to pay back in many instances which may make it look like a bad debt, but because this loan is aimed primarily to build up the individuals and what they make possibly become after the college makes it a good debt. But nevertheless, it is advice able for borrowers who take student loan to always try as much as they can to go for small loans of institution that are not very cost and expensive to finance.
What you are going in to study also matters, if your course of study is not such that will earn you 6 figures annually when you start working, don’t then take a loan of 6 figures to finance your self. You should not always incure a loan that will be too much for you to pay back.
Homes are a form of assets that appreciate and when you buy yours, it is going to save you from rent and other tax. Most people who buy a house do so through loans because of the expense of buying a house. And with good credit score you can always secure a mortgage at a relatively low interest rate. There is always enough benefit of incuring a debt for mortgage more than not taking and be there paying rents and taxes.
- CAR LOAN.
Actually car loan maybe regarded as a bad debt because the cost of even maintaining a car after purchase is not funny but how ever, if the purpose of buying a car is with the intentions of bringing it into use to realize more income, then it will be a good debt to secure a car loan in other to generate more income.
For example when you buy a car for the purpose of getting a job that will get you more income, then it is always better to get a car loan on an inexpensive car. And as we have discussed, it can always be a bad debt if the cost of maintenance and insurance is high.
- WHAT IS CONSIDERED AS A BAD DEBT
These are debts that are used to pay for things that are not of future value like a car loan that is not meant for business purposes, a consumer loan and or loan secure for lifestyle purpose is not a good one at all. Changing furniture, buying new clothes or electronics gadget with loan will just put you in more debt, meanwhile this things are of no future value for you and it will just makes your debt to accumulate well
Also Credit debts and other pay day loans that will cost you money in the long run are also a kind of bad debt that can be avoided, because this credit cards and pay day loans create a very big future problems
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LIVING THE DEBT FREE LIFE.
A debt is a debt whether it a good one or a bad one. There for as a person with choice on whether you should or should not go for debt, it is always the best not to take any loans and remain totally free from debt if it ever possible.
You are able to think straight when you don’t have any debt, you will be financially and psychologically stable knowing fully well that you don’t have a fix monthly payments on loans. It gives you more confidence to be able to settle and plan well as you want. Even as we know it is difficult not to have any form of debt especially as an average person who want to invest or go into big projects, but what ever the case is, when it becomes a must you borrow, always borrow wisely irrespective of what the is reason you are borrowing for.
Originally Published by:- Money.howstuffworks.com
Image Credit:- STUDYMASTERS.COM
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