Not all debts are considered bad. Some debts can actually
improve your credit score and your worthiness as a
borrower. Let's discuss the differences between good debts
and bad debts and hopefully, by the end of this article
you'll be able to take an objective look at your financial
state and act to manage your debts accordingly.
Good Debt - A debt that appreciates in value as time passes
is a good debt. In fact, a mortgage loan is considered as a
very good debt. As you know, the price of a home property
usually increases over time which means the amount of loan
you used to purchase your property is so much less than
what it would cost after 10 years or more. This is why many
people who have the resources choose to buy home properties
as an investment.
A student loan can also be called a good debt. Why? Because
you're using the money you loan to earn a degree. When you
graduate from college, you'll obviously be earning so much
more than the amount you used to obtain your student loan.
Bad Debt - Acquiring debts because you need the money for
purchasing consumable things can be considered bad debt.
For example, obtaining too many credit cards is not a very
healthy habit. Using your credit card to spend on things
that do not appreciate in value, is a big mistake
especially if your credit card has a high interest rate.
There have been so many people all over the world who got
stuck in debt because they were unable to control their
spending using their credit cards. Because credit cards are
so easy to use, it is also too easy to splurge and use it
in unnecessary expenses.
Another example of bad debt is a vacation loan. Some people
tend to spend more than what they can afford on vacation
trips because they were able to get a vacation loan.
Although, it's a good idea to take a break from time to
time, it would be better if you can set aside savings from
your own money that you'll be spending for a vacation.
Bad Debt Management - Take a close look at your current
financial status. You may have incurred both good and bad
debts. If so, then you should prioritize paying off your
bad debts first since they do not increase in value.
However, this does not mean that you can take on as much
debt as you like as long as it's a good debt. It is very
important to consider things ten times before acquiring any
type of debt. Even if you think it's a good investment, it
is not practical to take on new debts, if you know that you
don't have the means to pay for it.
Ultimately, whether it's a good debt or a bad debt, you are
accountable for it. The best thing you can do as a borrower
is to be constantly aware of how much you owe and what you
can pay. Be responsible enough to pay back what you owe on
time.
----------------------------------------------------
Liz Roberts is a loan consultant with NewHorizon Finance
and has been providing consumers and business owners with
financing since 1989. Bad Credit? Join our mailing list for
tips on building and repairing your credit yourself
without hiring a credit repair. For a list of bad credit
credit cards visit
http://www.newhorizon.org/Info/unsecured.htm
No comments:
Post a Comment