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Good Debt vs. Bad Debt

 

Good Debt vs. Bad DebtWhen taking a look at your financial responsibilities each month, you may feel quite coverwhelmed by the amount of money that you’re spending on debt. Sometimes debt might seem like a trap that you only want to fight your way out of, but not all debt is bad. This post will help you be able to differentiate between the two.

In today’s society we live in a very instant gratifying “I want it now” world, many Americans do not have the self-discipline or the patience to wait until they’ve saved enough money to make a bigger purchase. Credit cards make it easier to purchase items that people just do not tend to have the cash to pay for. Because of this minimum payments are designed to make money for the bank or credit card company, while everyone else finds themselves in a situation where they are paying a lot of interest but very little toward their principal balance ..safe to say that this is considered bad debt.

Another example of bad debt happens when you lose your income. When someone loses his or her income, through a job loss or some other event, things can change rapidly in their finances, particularly if the person losing the job is the family breadwinner. It can be a very stressful time as families struggle to keep their head above water. Many times, debt will accumulate very quickly, as they have no choice other than to turn to rely on their credit to make ends meet.

Now let’s focus on the good ..many people don’t realize that carrying certain forms of debt can be beneficial to their credit. Student loans, mortgages and auto loans are among these “good” debts. Managed properly, they can help to raise your credit score and build up a healthy credit history!

Do you have a brilliant business idea, but lack the funds to pursue it? A small-business loan might be considered good debt for you, since you can leverage it to get your business off the ground. If your business turns profitable, you can pay back your loan and start getting a return on your investment. A business is supposed to generate revenue, and if you have a strong plan — along with some heart and hustle — a small-business loan could help you get a return on your investment.

Although Debt has had a reputation of having a negative cloud hover above it, through the years we have learned that certainly not all debt is bad debt. Once able to differentiate between the two, it is guaranteed that your financial situation should see positive changes with consistent dedication!