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Difference Between Good And Bad Debt

Difference Between Good and Bad Debt

Good Debt

Believe it or not there are debts that can and will improve your financial conditions in the future, these are known as good debts and they vary from student loans, mortgages, business loans, etc. In other words, these debts can actually have a positive impact on your financial situation.

A few examples of “Good Debt” is listed below:

Student Loans

Education is a necessary financial decision for many individuals. Student loans are the best and most secure investment for a bright future. A Student Loan is required to fulfill the essential needs of students. When students are responsibly repaying their owed amount, this loan can reflect positively on your finances for future purchases or loans you would like to take out.

Business Loans

Business is the biggest source of independent income. If someone is interested in investing their money and expertise into their own business or someone else’s, then inquiring about a Business Loan is the safest and fastest way to invest. This type of debt is best for a person who wants to have his sights on business longevity all while responsibly paying back the lender within the contracted dates.

House Debts

Another safest model of a good debt is a house debt or mortgage. It is the best investment for a person who wants his/her own home with the potential of earning MORE than what the original debt was made out to. This type of debt isn’t considered a bad debt at all because you can sell your property at a time that is convenient for you with a promising return on the other side!

Bad Debts

These debts have the most potential of acquiring the most financial penalties If not paid on time, or if the contracted APR is more than what the borrower has intended on paying. The outcomes of bad debts are more problematic and can keep you in a vicious cycle.

Automobile Debts

In today’s fast world, it is extremely difficult for anyone to avoid buying a car. But, it can become a burden and stunt financial growth if mishandled. Automobile debt can be considered bad debt as it does not have the potential of making back any of the money that the borrower has original inquired about borrowing.

Payday Loan Debts

Payday loans can come at a huge disadvantage most of them have significantly high interest rates. In fact, their interest rates are often higher than interest rates of credit cards. If you’re already struggling to pay your monthly bills, the last thing you need is to take on more debt and find yourself in the Payday Loan Debt cycle.

Credit Cards Debts

Credit card debt does have the potential of looking good when you are able to pay bills on time with no late penalties acquired. It is better to manage your budget according to your financial conditions, as many borrowers can find themselves drowning in debt after a few late payments and how high the percentage use is on the specific card. In return, these penalties can have a MAJOR negative effect on your credit score. It is always better to avoid taking on any debt unless absolutely necessary, but it also depends upon how responsible you are being with repayment on if it will have a negative or positive impact on your finances. Deciding if a debt is good or bad is solely dependent on the borrower. There are many types of solutions for paying debts off comfortable and hassle-free, for example, if you have multiple debts, you are juggling Debt Consolidation is a sure shot way to pay debts under your terms and within budget. If you happen to find yourself in a vicious Payday Loan cycle, Payday Loan consolidation is a viable option as well!