How to Assess a Good or Bad Debt
How to Assess a Good or Bad Debt
In the past few years, the different types of financing solutions have been common to a lot of Americans already. However, many are still asking whether or not there is indeed good debt or bad debt. The following are answers to that question.
To be brief, there is such thing as good debt. This is because the majority of people do not have the money to buy expensive things without using a line of credit.
To find out if a debt is good, the first question to ask is whether or not the debt will be used to buy something that increases your importance, for instance, a higher education degree. Another question to ask is whether or not the thing you bought will increase in value. If the answer to one or both of the questions is yes, then the debt is considered as good debt.
Higher education loans may be considered either a good debt or a bad debt. It will be a good debt if you graduate and have favorable job prospects. Otherwise, it will be a bad debt.
Besides increasing your value, good debt increases your credit score as well if you always pay your debts on time.
On the other hand, a lot of financial advisors consider credit card debt as bad debt. A bad debt is incurred when a credit card is used to buy non-durable goods like clothing, vacations, and excessive gadgets. Moreover, if these items are not paid off within either one to two billing cycles, then it will be considered as bad debt.
Importantly, buying non-durable goods and services does not increase tangible value to the life of a certain person and most of the time is not needed.
Just like higher education loans, auto loans may also be considered good or bad debt depending on the car’s value and its main purpose. To determine whether an auto loan is good or bad debt, the question to ask is whether or not a car is essential to your lifestyle.
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Filed under: bad credit • Credit • Credit Score • line of credit • Loans • refinance
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