It is hard to imagine any debt being “good” debt. In most cases, it is not a good idea to carry debt. The interest rates alone are often the most significant deterrent to not paying off credit cards in full every month. Surprisingly though, some debts are good! Any debt that will bring in income and value over time is considered “good” debt. “Bad” debt is any debt that will cost you more money with no future income over time.
It can be very stressful to start a small business, and it is often necessary to take on debt to get the new business off the ground. The biggest positive of this endeavor is becoming your own boss, but this type of debt is considered “good” debt because it will lead to income in the long term. There is some risk in this type of debt because not all small businesses thrive and succeed, but the financial freedom it brings when it works out makes it well worth the risk.
Another type of debt that is considered “good” debt is real estate debt. Becoming a homeowner and/or acquiring properties for income is considered “good” debt because you are purchasing a property that can bring you income over time. Owning your own home is not only rewarding, but it is financially helpful. Every time you make a mortgage payment, you are building equity in your property. This will give you more financial freedom in the long run, and you can eventually sell your home for more than you bought it in most cases. There are also a lot of positives in being able to collect income from investment properties. They can be commercial or residential. The rental income will put money in your pocket and help with the financial risk of purchasing the property. There is some risk involved in this, but it is a risk that can pay off over time.
“Bad” debt is anything that will cost money in high-interest rates without the possibility over income from it, such as credit cards, payday loans, and cash advance loans. The high-interest rate associated with these types of debts can lead to financial doom. It may become challenging to pay off the debts because they occur so much interest each month. Make sure if you do use your credit card that it is something that you need. Buying clothes will not earn you any income over time, and with interest, the bills will make it, so the clothes cost you a lot more over time.
Many companies also think it is good to take out high-interest loans such as payday loans and cash advance loans when they have bad credit. Still, the interest rates are so high that they often put the company in a worse situation than they started in. There are much better options such as debt settlement for accounts in collections and debt consolidation loans for accounts that are in good standing, but that is too high to pay separately.
Ultimately taking control of your financial health is very important. Knowing how to control what type of debt you have is crucial to your financial health and future financial freedom.
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