Good Debt vs. Bad Debt



What are bad debts? Examples of bad debt are consumable things such as food, clothes, vacations, and other items that do not appreciate in value. When you purchase any of these things and charge them to your credit card, there is always the risk of falling into bad debt. How?

Remember that each time you carry over your credit card balance from month to month, you will also incur high interest rate charges. This is why uncontrolled credit card use can put you in real danger.

Aside from credit card debt, it is also possible to bad debt from delaying or missing mortgage loans, personal loans and insurance bills. If you fail to submit your payments on time, you will be charged with additional costs that can make repayment a burden.

What about good debt?

Good debt simply means controlled debt. A very good example of good debt is a mortgage loan. When you a home property, its value will increase as the time passes. However, a mortgage loan can only be good debt if it is properly managed.

Take note that if you miss or delay with your loan payments, your creditor can foreclose your home and you could end up losing your property. Obviously, in order to protect yourself from bad debt, you need to pay close attention to your payments.

Good debt means building good credit history. And why is this important? Having a history of good credit can give you an advantage when applying for a loan or a credit card.

Good credit is also indispensable when applying for a job or when looking for an apartment to rent. Without credit history, creditors would most likely decline your application.