Good And Bad Debt – What’s The Difference?

For many of us, any debt seems like a hindrance, and the term “good debt” seems rather confusing, yet actually, there is a big difference between good and bad debt. In the modern world we live in, we are all in debt to some degree, after all, it is only the lucky few who can afford to pay cash for their home, and that dream car you’ve always wanted could not be purchased without finance. With those in mind, here are the basic differences between good and bad debt.

Good Debt 

If something is classified as “good debt”, it means the debt is a long term investment, such as buying property. Although you have incurred a debt through the purchase, its value will increase over time and therefore, it makes good business sense to borrow the money. Borrowing to buy an antique, for example, is a prime example of good debt, as is making a purchase on the stock market, as you are speculating to increase your overall wealth. A student loan is another example of good debt, as this enables you to progress in the job market, and simply put, any loan that pays for an investment is classified as good debt. There are, of course, conditions to this, like, for example, the asking price for the purchase, which should be in the acceptable price bracket, and should the asset be sellable and the value accumulates, then the loan is categorised as “good debt”.

Bad Debt 

If something is classed as a bad debt, there is no return, such as borrowing money for a holiday, or any personal loan that is used for daily living expenses. From a business perspective, bad debt makes no economical sense. Millions of people turn to debt assistance from specialist companies that offer consolidation loans, as high interest rates compound their mounting problems, and if you are struggling to meet several loan repayments, there are online companies who specialise in formulating recovery plans for those who have credit card problems. It is oh so easy to fall into the trap of using your credit card to survive until the end of the month, and far too many people cross this line and without some expert financial advice, one can sink even further into debt, as accruing interest takes hold.

If one does not have enough self-discipline, it is easy to overspend, and as we are bombarded with commercials that show us lovely things and the retailers make it very easy to walk out of the store with the goods. One must really take an economical approach and by calculating your net income, a few minutes listing all your monthly outgoings – right down to the last dollar – will soon tell you whether or not, you can afford something.

It is nothing to be ashamed of to be in a situation where your outgoings are higher than your income, and with experts online who have the know how to straighten things out, should you ever find yourself in this situation, all it takes to get help is an online search.