Friday, March 1

Find The Difference Between Good And Bad Debts

For most people these days, debt is just a fact of life. It is a way to pay for everything right from big-ticket items like cars and homes to some of the daily purchases like chewing gum and gasoline.  If you define debt in basic terms, it is simply an amount borrowed by one party for any personal or professional use from the lender. If you check this definition, debt seems neutral, neither bad nor good. But, if you take a closer look at the matter, it will offer a sophisticated way of viewing indebtedness.

Debt is categorized under good and bad debt. Before you settle for any debt or even the debt settlement or consolidation plans, you need to learn this basic difference. It will clearly help in addressing your needs pretty well.

About good debt:

The best example of good debt has to be the phrase, “it takes some money to make more money.” Good debt, as suggested from the name, helps you to generate income and increase your net worth. Now, you must be wondering about the good debt types. Well, there are four notable areas, where you can take the help of debt to proceed further in the future.

  • College or technical education:

Education has always been synonymous with success. Generally speaking, if an individual has more knowledge, chances are high that he or she might earn great potential. Education does have a positive correlation with the ability to find employment. Better and educated workers are likely to get employment with higher salary packages.

They even find it easier to gain new opportunities than others. A proper investment in a college or technical degree will pay you great within a few years’ time. It will help you to enter the best workplace and earn bucks. So investing in this type of education debt can present you with a bright future ahead.

  • Investment sector:

Short term based investments help in providing the opportunity to generate some income. Moreover, long-term investment is a great way to generate wealth.  There are variations of investments available like bonds to stocks, alternative investments to commodities and what not. Some people are even accommodating in precious metals and futures, with a high-risk tolerance.

  • In the field of real estate:

There are so many ways to make money in real estate. On the residential front, the simplest strategy mostly involves buying a place and living in for decades before setting it at a huge profit. The residential real estate can further be used for generating income by taking broader or renting the place. Commercial property loans, on the other hand, can also be an excellent source of capital gains and cash flow for investors.

  • Smaller business ownership:

Making a bit of money is the whole point of starting a fresh new venture. Earning income is the primary note of entrepreneurship as you will be your own boss. You are not just going to avoid reliance on the third party to hire your service and present you with a paycheck, but your potential earning can improve your willingness to work harder.

With a bit of buck by your side, you can easily turn your ambition and drive into a self-sustaining enterprise. In the future, a bit of IPO or initial public offering can result in major wealth.

Next is the bad debt:

Just like good debts, the market has some bad debts too. There are good debts, which have their cons too apart from the pros. But, in terms of bad debts, it is hard to find any positive sign of it. Learning about bad debt will definitely prevent you from taking those loans in the first place. if you can avoid bad debt, you can further avoid the dilemma of debt consolidation or settlement plans. For details, go through some debt settlement reviews and gain some knowledge.

  • For buying cars:

It is true that cars have become a necessity these days, but for some people, it is a mark of social status. The more expensive car he has, the higher will be his ego. People end up taking huge bulks of an amount for purchasing a car, which then turns into debt. Cars are widely used to reach office or workplace on time, covering some daily errands and more. Trying to pay interest for a car is a waste of money. So, avoid taking loans for that.

In its place, you can try purchasing a second-hand car with your money. It will prevent you from making any interest rate submission or even can ignore the pain of being in debt. You can actually get some of the quality cars from reliable second-hand dealers. They will present you with second-hand cars, as good as new.

  • In terms of consumables, clothes and other goods:

It is well said that clothes are worth less than half of what consumers might pay to purchase them. If you ever look around any second-hand clothing store, you will come across the best quality clothing items. Apart from clothing, fast food, vacations, gasoline, and groceries are commonly bought with the borrowed amount, leading to more debt pressure. Every penny that you have spent on such items is the amount you could have easily used anywhere else.

  • The worst is the credit card:

Hands down, the worst bad debt example has to go to credit card use.  This plastic money is the worst-case scenario of bad debt. The interest rates around here are significantly higher than rates on consumer loans. Even the payment schedules are designed in such a manner, which will extract maximum costs from a consumer. It is always a good idea to keep a proper balance on credit cards.

The final statement:

Among bad and good debt controversies, one thing is clear; no debt is good debt. There are few people even now, who can easily afford to pay cash for their consumables. It is only due to some careless mistakes and bad planning that they have to take a loan to cover some payments. Such planning results in debt formation, giving rise to stress and tension.

Article was written by the guest writer Isabella.

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