It is not only when you borrow, that you incur debt. There can be numerous other situations which can lead you to debt. Even the utility bills add up to the amount you owe to others. So, that in some sense is debt too, although, the utility billing amounts do not get listed on the credit reports easily enough, these can come up on the reports if you miss the payments for too long. Now, even if you avoid credit card usage, it may not be possible for you to avoid the utility bills. So, not every penny that you owe can be bad debt. However, if you can manage to see good debt from bad, it may still be possible for you to do away with the bet issues. Like, you consolidate debt in order to do away with your financial problems, it is important for you to learn what bad debt is and which the good ones are.
Difference Between Good Debt and Bad
You must be wondering, if there is anything called good debt. Let me tell you that, yes there is good debt, till you know that you aren’t incurring those for the sole purpose of giving into your impulses.
Moreover, fact is that it may never be possible for you to get any new credit, in any form if you do not have any credit established from beforehand. When you apply for new credit, the first thing that creditors and lenders do is check the status of the debts you owe and your credit rating. You can get better offers and better terms and conditions, only if you have a really good credit rating. If you have no credit or bad credit rating, your loan or credit card application may get rejected. Therefore, it is obvious that debt to some extent is good.
Even if you invest money and if you are required to borrow for that, that too would be considered to be good debt. This is because, you have been planning to make the money grow, and that is considered as a good step towards your secure future. So, if you can get greater returns from your investments, it may be possible for you to pay down what you had borrowed for the investment purpose.
Bad debt on the other hand is the ones which are completely unnecessary. For example, if you have credit cards, and if you using it for the purpose of buying things that you took a liking to, it obviously is considered as bad debt. If you use the credit cards for shopping anything and everything you want and simply forget to make the payments, it too is considered as bad debt. While you forget the payments, it goes on to add up into a billowing forth devil. What you need to do is manage to make the payments every month and that too within time. That is a great way to do away with your bad debts.
So, this is what the difference is between good and bad debt, and understanding this difference can actually help you practice better control over your finances; but only if you ‘will’.