Good Debt vs Bad Debt
Dennis C. Williams, Jr.
Proprietary Money Saving App | Coaching | Avoid Interest Payments, Quickly Pay Off Debt Any Debt | Strategic Debt Strategy | Limitless Applications | Boost Credit Scores, Highly Rated | Author | Enjoys Family, Travel
What’s a simple principle to differentiate between good debt and bad debt?
Using debt, to purchase an asset or skill that will increase in value, boost productivity, or increase income over time. The sooner these advantages can be experienced, the faster the debt will be paid.?
?Student, business, investment, and home improvement loans can potentially be great examples. Before taking a loan, ask yourself, “What advantages am I expecting to receive and by when and are my expectations realistic?” Too often, current and future market conditions are not researched. Get second opinions and speak with people that are closely associated with the area of interest. Always ask yourself the question, “What can go wrong? How will I adjust?”
Bad debt are loans that at first glance seem reasonable but upon closer review, market conditions may not be favorable, the career being considered isn’t likely to grow or the business product isn’t in high demand.?In short, bad debts do not provide long-term financial benefits and may result in financial hardship. Examples of bad debts include the following.
??????1. Credit card debt: Credit card debt used to purchase items that immediately will decline in value you cannot afford to pay off every month. You may end up paying high interest rates and fees that can lead to financial stress.
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??????2. Car loans: Cars lose value over time. If the car loan has a high interest rate, you may end up owing more than the car is worth.
??????3. Payday loans: Payday loans are a type of short-term loan that can result in a vicious cycle of debt. These loans typically have extremely high interest rates and fees and will create additional financial hardship.
??????4.?????Personal loans for non-essential expenses: If you take out a personal loan to finance a vacation, wedding, or other non-essential expense.?
??????5.?????Debt to finance a lifestyle beyond your what you’re earning.?Examples include expensive clothes, electronics, and other items that are not necessary for daily life.