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Posted September 3, 2017No comments | Home Loans

Good Debt VS Bad Debt: Know The Difference

Aside from taxes and death, debt is also a fact of life. When you are strapped for cash, borrowing money is sometimes the only way to make cash available. However, a debt can be a routine you cannot get out of especially if it offers perks. In the long run, you will realize that your life takes a nose dive when you are no longer capable of repaying your debt. This is where problem starts to arise. There is such a thing as good debt vs bad debt. It is important understand the difference because debt is inevitable.

Good Debt

Small Business Ownership: It is possible to borrow money for starting a small business because cash is not yet flowing into your company. While the main reason for starting a small business is to earn income, borrowing money to grow your business is unavoidable. Good debt can be used as a motivation for working hard. Good debt increases your drive and ambition.

Residential Real Estate: Buying a home is another good investment you can make. It secures your future and gives you a sense of fulfillment as your money does not go to waste. Residential real estate increases in market value over time. It is wiser to take out a mortgage instead of renting a property because soon enough, you can generate income from your real estate by taking in a boarder.

College Education: More education means greater earning potential. If you do not have money to spend for going to college or pursuing higher education, you can always apply for a grant or a loan. College education is an investment and in just a few years, your sacrifices will pay off as you enter the workforce.

Bad Debt

Credit Cards: Improper use of credit cards can snowball into larger financial problems especially if you are not mindful of your spending habits. Their interest rates are higher than consumer loans. If you miss a payment schedule, the interest rates can leave a dent in your wallet.

Cars: Before you take out a car loan, ask yourself if it is really necessary. New cars can cost vast amounts of money as you have to pay for the interest. Cars may be a practical and convenient way to go to work but living beyond your means can take a toll on your life in the long run.

High-end Clothing: You may feel the urge to be in vogue, but if it means taking out a loan just to buy designer clothes, you are taking a turn for the worst. Money does not grow on trees; spend it wisely.


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