When it comes to debt, there are very few individuals, if any who will tell you it is a good thing. The disturbed feelings, anxiousness and the stress that comes with debt have been experienced by many, which results in a bad debt experience. However, that is not always true, as those feelings can turn into positive ones, but only when you know the good reasons behind debt. Okay, so it may sound kind of crazy, debt and good… Well, yes it can be. Just carry on reading this article on good debt vs bad debt and get one step closer to discovering the good reasons behind debt.
Common Forms of Debt
There are definitely those times when debt can be thought out to be worthwhile. This usually depends on the form of debt, as they are not all the same. Listed below are the most common forms of debt with the reasons that will hopefully show the winner between good debt vs bad debt.
Training or Education
Commonly, if you are very educated chances are very high for you to have a larger earning potential. If someone has an MBA, they tend to have more opportunities that are available to them, which can also result in a higher salary when compared to someone who has a high school diploma. A person with an MBA is also likely to be working and even if they aren’t, the chances of them finding a job are very high. Secondly, there are also trade and technical schools, which give you the opportunity to learn valuable skills. This will also help to increase your earning potential.
Result – Good Debt
Credit Cards
Only when they are used sensibly, credit cards are a powerful tool sitting in your financial toolbox. Credit cards offer the ability and convenience to earn points that can be cashed in order to obtain valuable rewards. If credit cards are used irresponsibly, they can end up costing you a fortune in finance charges. If you are carrying a balance you will end up paying much more for each purchase you make. The worst kind of debt that you can possibly have is credit cards. Okay, so that sets a draw between good debt vs bad debt.
Result – Bad Debt
Real Estate
When it comes to purchasing a house, the argument over good debt vs bad debt could rise again. A minority of people can afford to buy a house in cash, which means the majority will require a mortgage to buy a house. Typically, the interest on mortgages is very little, which makes it likely for your home to increase in value overtime, making it a worthwhile investment. When it comes to a commercial real estate investment, this has the potential to create income through the rental fees.
Result – Good Debt
Car Loans
One worst financial decision one can make is purchasing a car. This is another quarrel between good debt vs bad debt, depending on what you choose to do. Once the car is driven from the dealer’s lot, that’s it and the car has lost a vital part of its value. Supposing you financed your purchase, in that case you are making a monthly payment for a car, which is worth a smaller amount than you are paying for it. As time goes on, cars do not increase in value. What happens is they tend to become less valuable with time. This is excluding the maintenance costs that are involved in having a car. Getting a loan on a used vehicle is a good idea if you need to finance one. You can also try and look at credit unions. If you are someone with a high credit score and good with your money, you can easily finance in order to keep your cash liquid. Technically; however, a car loan is a bad idea.
Result – Bad Debt
Business Ownership
If you are thinking of starting a small business, then no matter what it is there will always be a startup cost. This is required in order to help the business get started and running. This kind of situation is one that requires money in order to make money. When your business is successfully up and running and you are making profits, you will be glad you borrowed money for starting it. Do it the right way and that’s another plus point for the good, when it comes to good debt vs bad debt.
Result – Good Debt
There will obviously be no guarantee, which means even the forms of debt that are good could end up leading you into trouble. The bad things step in if you borrow much more than you are able to pay back and/or if your business doesn’t quite turn out how you wanted it to. This means there is a less chance of any profit, which will lead to even more problems. What you need to remember is to use good debts sensibly. This way you can borrow a sensible amount, knowing with confidence you will be able to return it.
You cannot let bad debt win and always ensure that when it comes to the good debt vs bad debt battle, yours is always good.