Difference Between Good Debt and Bad Debt & Importance of Debit Card

2019/06/03

Are you in debt? Do you feel overwhelmed every time your bills arrive? Do you feel that you are spiralling into a debt trap? Well, you can definitely find a way out of it once you understand the nature of your debts because not all debt is bad debt.

What is a Good Debt?

When a debt can contribute to your overall financial position, it is considered to be a good debt. These debts are, in fact, regarded as investments. For instance, when you purchase a home or take a student education loan, you incur a good debt.

Home values increase over time and the mortgage that you take is considered to be an investment. Similarly, student loans will help you get a good job and are considered an investment in your career.

A debt is also a good debt when it is repaid on time, every time. Some people will use their credit cards in order to increase their credit rating, but they will also be in a position to clear their balances regularly.

Now, What is a Bad Debt?

Debts incurred to finance consumable things are regarded as bad debts and can lead to unhealthy financial positions. For example, credit card debts are bad debts – you should not incur debt on everyday necessities like food and clothing or for financing a holiday.

These items do not appreciate in value and you are safe only as long as you are able to pay off the balance every month. The point is you don’t have to go on a vacation that you can’t afford. And you certainly don’t need to live on credit.

How Will a Good Debt Help?

When your lender takes a look at your credit report, he will view the good debts more favourably than the others. So this means that these debts will not affect your credit score adversely. Bad debts, on the other hand, prove to be costlier as they do not appreciate in value.

If you have both good and bad debts, make it a point to pay off your bad debts first. But remember, a debt is a debt, and has to be repaid – whether it is good or bad. So don’t take on too much debt as it will definitely affect your financial health.

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