Life is hard as we all know and few of us can handle it without taking loans or borrow money from friends so debt for many people today is simply a fact of life and if you think in taking this step to have a loan or a debt you must realize the difference between good debt and bad debt, in this article we will go deep in the difference between them.
First, What is a Good Debt
“it takes money to make money” so the good debt is simply a way for to make more money. Good debt helps you generate income and increases your net worth also it helps you in buying the necessary things in life such as a home, car, and paying for your education or your children education.
Student loans are a kind of good debts because you invest in your own future and this kind of debts comes with low-interest rates especially if they’re federal student loans and to be able to handle overwhelming student loans, look into repayment options such as refinancing.
Mortgages are another kind of good depts it is necessary for everyone to have a home so it is the path to homeownership also this dept comes with a low rate interest and you can pay back the loan from five to ten years and this period can change from bank to bank.
Cars for many is essential for everyday life, a lot of us can not go anywhere without a car so car loans are good for you if you want to buy a car but don’t have enough money but in this case, the bank will need insurance to make sure that you will pay back.
Second, What is a Bad Dept
it is used to buy things that quickly lose their value and do not generate long term income or increase money or your net worth, also it carries high-interest rate, like credit card debt. The general rule to avoid bad debt is: If you can’t afford it and you don’t need it, don’t buy it. It is a very simple role to follow.
Clothes, Consumables and Other Goods and Services are a kind of bad debt if you took money to buy them. Every penny spent in interest on these items is money that could have been used more wisely elsewhere, so try not to borrow money to buy these things just buy what you really need.
Credit Cards are one of the worst kinds of bad debt. The interest rates charged are significantly higher than the rates on consumer loans and the payment schedules are arranged to maximize costs for the consumer, so try to avoid using them all the time.