One of the terms you might hear when dealing with debt and financial trouble is “good” debt. Debt is usually seen as a wholly negative thing due to the implications it has; you owe money and you need to pay it back. This is probably why people have tried to put debt in a positive light by coining up the term “good debt”. But what exactly is good debt, how does it compare to bad debt and does it even exist or is it a made-up term to get you to borrow money? Let’s delve into the situation and take a look.
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Good debt is for a purpose
Whether it’s a student loan, mortgage or loan to purchase a car, good debt usually serves a good purpose. For instance, a student loan is an investment into the future. It helps you put together an academic degree that will be used to help you find a better job. With this better job, you’ll make more money and eventually be able to pay off your student loan with a salary. Similarly, a mortgage is an example of good debt because it’s being used to purchase a home for yourself. Property is usually incredibly expensive and renting isn’t always the best option because you don’t technically own the home. As a result, it’s a good idea to look into mortgages so you can take one out and purchase your own home to raise a family and call your own.
As you can see, good debt is here for a purpose. Recovering from debt doesn’t always have to be for a poor reason. If you’re paying back a debt that was used to improve your life or to pay for the home you’re living in, then you can consider it an example of good debt and you shouldn’t feel ashamed of it. If you think about it, there are very few people that can afford a home in a single payment which is why even wealthy people will choose to take out a mortgage to buy their home.
Bad debt is for personal use
Some examples of bad debt include taking out a loan so you can go on holiday or purchase a video games system. It’s the type of debt that makes you regret actually taking out a loan in the first place. You’ll resort to looking at this article and other similar debt relief services to help you get out of the sticky situation that you’ve put yourself into. Bad debt will rarely ever be good for your long-term financial situation, which is why it should be avoided at all costs.
So to conclude, good and bad debt both have distinctions. It’s important to understand the differences so that you can make smarter financial decisions for the future. Some people feel that bad debt can be positive sometimes because it helps to enhance your life, but something like a holiday isn’t as necessary as a home. It’s all about living with what you have and only spending money on things that are absolutely necessary to your way of life.