In our topics about debt and bankruptcy, it has probably come to you that taking debts are bad. However, not all debts are necessarily bad. Some actually have economic benefits – what we are calling them the “good debts”. Let’s distinguish the difference between good debts and bad debts.
Good debts
These are debt that’s used for assets (anything that can increase in value over time) or debts taken with possible returns.
Examples:
- Business loan (if you succeed, you’ll get financial returns)
- Rental properties
- Home mortgages
- Auto loan (if truly necessary, or will bring actual economic benefit)
- Student loans (having a degree will increase your chance of landing a good job)
Bad debts
These are debts that are used for liabilities (anything that usually doesn’t increase in value; by default, they depreciate or decrease in value). Often, these loans are taken for leisure purposes.
Examples:
- Clothing
- TV
- Auto loans (that are not necessary)
- House loan (if that’ll cost you more than you can earn)
- Vacation loans
- Taking debts to use it for gambling
Conclusion
So, it’s clear. Debts aren’t necessarily bad, some are good. If you’re confused, simply ask yourself: Will this debt help me grow my money (or at least help me in some practical way), or this debt is used nothing other than for leisure?
Any debt that’s used for leisure is bad debt, and any debt that’s used for possible economic benefit is good debt.
But of course, taking debts for leisure purposes isn’t necessarily bad if you can manage it. But still, why take debts for leisure when you can just save?
Regardless, you must learn to manage your debts well. Just because it’s a good debt doesn’t give you a justification of taking more and more “good debts” – that can hurt you in the long run.
If you’re already sinking in debt and probably on a verge to bankruptcy, you can always consult the best bankruptcy attorney to help you with your concerns!