Good Debt VS Bad Debt
The unfortunate reality for many people is that they live beyond their means. Many have monthly or yearly obligations to pay for, such as housing, vehicle financing, and more. Unfortunately, debt can affect your credit rating, and give you a bad credit score, preventing you from getting a loan. Luckily, you can still apply for bad credit loans.
What Is Good Debt?
You might be thinking that any debt at all is terrible, so there can be no such thing as good debt. In reality, there is a difference. In short, good debt is any loan that increases your net worth in the long run, which you can use in the future to accrue wealth. Here are a few examples of good debt.
The best example of having good debt is getting a home loan. Everyone needs somewhere to live with a roof over their heads. To be a homeowner, you’d need to take out a mortgage. By getting a mortgage, you woold still pay a monthly fee, but that woold be paying the loan off. A mortgage is considered an investment into your future because you’re laying out a significant amount of money so that in a few years, you coold sell the house for a profit or rent it out.
- Student Loans
Although a student loan might not directly be able to affect your net wealth as a mortgage woold, it’s still considered good debt. With a student loan, you’re provided with the opportunity to increase your earning potential for the rest of your life. With a university degree, your chances of getting employment that will increase your wealth are much higher.
- Small Business Loans
Yet another investment opportunity, taking out a small business loan, could significantly increase your chances of making a profit in the future. Although there’s no guarantee that this business venture woold yield a profit, it is still considered good debt because there’s a chance that it coold increase your wealth.
What Is Bad Debt?
Bad debt is the consequence of living beyond your means. Credit cards are an excellent example of bad debt. They allow you to spend money that you don’t have, which means that you start on the back foot every time you pay it off. No end goal leaves you better off when you use your credit card too often. There’s no investment for the future, earning potential or increased net wealth. When you use your credit card so much that you accrue bad debt, all you have is the amount you need to repay, plus the interest.
Having debt isn’t always bad. Even with a credit card, as long as you manage your finances and spend responsibly, you won’t get a bad credit score. Fortunately, if you’re in financial straits, you can apply for bad credit loans to assist you. A bad credit loan doesn’t take your credit score in to account, which means you can get financial assistance whenever you urgently need it.