Personal Finance 101: What is bad and good debt?

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Credit: Pixabay

By MJ Gonzales │ ExecutiveChronicles.com

Not all are keen on borrowing money especially in getting credit cards. However, due to different circumstances, it is inevitable that you will not engage in having debt once in a while.   Perhaps you are forced to avail loans because of health emergencies or business opportunities that you have to grab in no time.  But is there such thing as good debt? What are the steps that make you pay it with no worries?

The truth is debt is debt and it sounds like death if you become delinquent debtor that allows interests and penalties to soar high.  On the brighter side, not all debt is bad.   There is also considered good ones depending on where you’re going to use the money and of course, you’re paying it diligently.

According to Investopedia, things such as short-term investing, college education, acquiring real estate property, and establishing small business do make money in the long run. Thus, if you borrow money for any of it, you’re surely having a good debt, a kind of debt that will allow you to boost you income.

Credit: Pixabay
Credit: Pixabay

“There’s no better example of the old adage ‘it takes money to make money’ than good debt. Good debt helps you generate income and increase.

Actually using credit card is not that bad. In the Fox’s report, resorting to credit cards to buy equipment or have capital is one key why some businessmen survive and thrive in their businesses. The idea behind this is as long as you can recover the money you owe fast, that’s good for you business. You can still keep the phase of your cash flow, have profit, and pay your debt on time.  In relation to this, it is also important to know the term for your debt, whether it is a short or long term.

“It’s a matching game, where you want to make sure your long-term debt is matched with your long-term assets and your short-term debt is matched with your short-term assets,” Nat Wasserstein, of New York crisis management firm Lindenwood Associates, shared with Fox.

Meanwhile, getting debt to pay items that depreciate over time is considered bad like car and credit card. Apart from this, Investopedia mentioned the use of credit card and borrowing money to purchase consumable goods or services, and clothes.

“Buyers who insist on living beyond their means and financing a new car should look for a loan with little to no interest on it. While you’ll still be spending a large amount of money for something that eventually depreciates until it is worthless, at least you won’t be paying interest on it,” the business and investment site’ tip.