The difference between good and bad debt

The Difference between Good and Bad Debt

One of the biggest causes of stress is money. We are restless when we don’t have it and that’s how we end up getting into debts. And they say “there’s no such thing as good debt”, but is that entirely true? The concept of debt is dynamic. In this article, we’ll show you the difference between good and bad debt in order to be able to make the right financial decisions.

It is generally considered a negative thing but some may argue that it has its advantages too. Sure, we like to think that debtors stay awake all night worrying, but that’s not necessarily the case. In fact, some forms of debt will help you sleep better because they let you dare to dream of a more financially secure future.

Good Debt
Good debt is the type that has future value and the potential to increase your net worth. It’s basically any borrowing that is done for investment purposes. For example, borrowing to buy a house, or start up a business. A house will appreciate over time and could be sold off if need be, and a business is expected to generate income later in the future.

Bad Debt
This is the direct opposite of good debt. Bad debts are incurred when you purchase consumables that do not earn you any income and have zero future value. It’s best to stay away from these because they lead you to unhealthy financial situations. For example, going into debt to purchase everyday items like clothes and food, a new TV, or to finance a vacation is a bad.

Does this mean it’s okay to take on debts? Ideally, you should avoid them as much as you can. If you must, don’t take on too many debts even if you think it’s good debt. If you’re overloaded, you’d be unable to cope. To make wise financial decisions, first, consider the kind of financial future you want to have. We’re not sure it’s one where you’re constantly paying off debts. Now that you know better, we believe that you’ll be able to make the right decision.

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