Finance & Loans

Good debt v bad debt

It may not sound like it, but not all debt is bad there some debts that are actually good for you depending on the purpose you are using it for.

A good debt is used to purchase something that will increase in value over time, such as a house, a student loan which will increase your job worth or funds used for a high return yielding investments. These loans usually have a set term of repayment and the interest on these loans is usually tax deductible.

Bad debt is where the amount of money borrowed is used to purchase consumables such as food, clothes and entertainment. Interest rates on this type of debt, which include credit card debt, are very high. This means that you end up paying much more than the real value for an item, which will not increase in value over time but decrease in value and ultimately become obsolete.

Accumulation of bad debt will have an adverse effect on your credit score and will affect your ability to purchase a house or get a loan in future.

Therefore “being in debt” can actually help you earn money if used for the right purpose.