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Do You Have Good Debt Or Bad Debt

Updated on March 4, 2013
Good Debt vs Bad Debt
Good Debt vs Bad Debt | Source

What Is Debt

When talking about debt, there are two sides to consider; good debt and bad debt. Knowing the difference can make or break you in short-time. On average, people awake to the concept of debt around their early 20's. Until then, financial know-how has been circling around video game boxes and allowances usually provided by parents, friends, or guardians. Suddenly they are faced with paying their own way, and unfortunately debt becomes the norm rather than the unusual. And you can bet banks and credit card companies are counting on this batch of unseasoned consumers to mismanage money and credit cards; their huge profits depend on it!

Big Debt Small Debt

Debt can be big or it can be small, making up many facets of responsibility starting as little as the $12 you bummed from a friend for cocktails, to as grand as the $250,000 you owe to the mortgage lender. Defining your good debt from your bad debt will make you feel confident in your current as well as future lifestyle, while keeping your money in your pockets and out of the credit card company vault.

Get Educated About Your Debt

Be educated about debt; know good debt from bad debt from the beginning!
Be educated about debt; know good debt from bad debt from the beginning! | Source

The Good Debt First

When the money you owe is because of debt that will improve your overall quality of life, it is considered to be good debt. The best example of this good debt would have to be education loans. This good debt can be very costly and unmanageable at first, but over time these school loan investments will return many times over to your bank account. In reality the time it takes to pay off college loans is relatively short and the income granted to a college graduate is estimated to be $20,000 more annually than that of someone who only has a high school diploma.

Real estate loans are another form of good debt. Even as real estate wavers between the ups and downs of the economic tides, historically real estate proves over and over again to be a good investment. For example, buying a home for $200,000 today may increase its value to $240,000 in a few years. If you have been renting this property to a tenant for more than what your loan payment costs, it becomes an even better form of debt. In this scenario your tenant is actually making your payments for you while the value of the property rises. These are just a couple of really good debt situations.

The Real Story About College Students and Credit Card Debt!! (6 min. 35 sec. video)

The Bad Debt Side of Life

Bad debt can ruine your life and stress out your day
Bad debt can ruine your life and stress out your day

Now the hammer drops to the bad debt side of life. Bad debt consist of the things that are consumable or decrease in value over time. As mentioned before, credit-card debt is the purest example of really bad debt. People use credit-cards to pay for vacations, meals and other consumable products. The worst debt you can acquire are for things that become consumed very quickly. These products soon lose their value, and the effects of continued interest rates on the unpaid credit-card balance causes the price of these already-gone products to keep getting more and more expensive.

(image compliments of personalmoneystore.com)

You Can Not Avoid Debt

It is unreasonable to think that avoiding bad debt all together is possible. Even financial guru's don't expect bad debt to be non-existent. However, the money Guru's do have a recommended formula to help keep your finances in control. A person's bad debt should be no more than 20% of their annual income. An example of this is, if you make $25,000 a year after taxes, the money guru's recommend keeping your bad debt below $5,000. If this can be managed, it's likely that the money wise consumer can find financial peace when the monthly bills start stacking up on the entry way table.

ELEMINATE DEBT

The Products here allow you to see who and how much you owe; credit cards, loans, medical bills, mortgages, personal debt, and other areas. Recording this information allows you to see consistent forward progress in paying down your debts. You will find good financial practices combined with motivational results. Following a debt management plan each month will offer you a visual record of your debt and teach you how to pay it down monthly, and possibly avoid it all together.

Good Debt Or Bad Debt

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