Most consumers believe debt is no good, and more often than not they are correct. However, there are certain times when debt can be used for good instead evil, and can actually help you realize financial freedom sooner. Here is a simple guide that explains the difference between “good” and “bad” debt.
The Good Debt.
There are types of debt that can create a a better life for you and your family. For example, taking out a mortgage allows people to own their own homes even though they are unable to purchase it outright. If everyone had to save up enough money to pay for a house in cash, there would be very few families out there who could afford it.
Cars loans, if used responsibly, are another form of good debt. Many employees require transportation to get to work, and the small cost of a car loan is offset by the income earned from their job.
Loans for investment properties are a third example of good debt. By taking a mortgage on a house and renting it out, you are effectively leveraging debt to increase your assets.
Bad Debt -What To Avoid.
Debt can be murderous, especially in the form of credit cards with interest rates as high as 30%. If you find yourself taking on credit card for items that do not appreciate – such as steroes, CD players and computers – you are fighting debt every step of the way.
If these bad debts (or good debts for that matter) get out of control, your assets may be at risk. Even if you miss a payment here and there, your credit score will more than likely go down, which increases your interest rate on current and future purchases. It’s a vicious cycle: missed payments lead to higher interest payments, which are more difficult to pay… leading to more missed payments and even higher interest rates.
Want to find out more credit score tips, then visit our site on the difference between good and bad debt.
