I was thinking the other day about debt, and I got to wondering if there is such a thing as “bad debt” could there also exist “good debt” and if so, what would be the definition of it. To come to that definition we first have to examine what makes up bad debt.
Bad Debt
If you have to take out a high interest loan from a bank, a payday loan, or charge your credit card for something that will depreciate in value to zero, that’s bed debt. Think new cars, clothes, charging for a vacation, appliances, furniture, etc. It is almost always best to save up and pay in cash for these types of things, or you will find yourself paying way more for something than what it is worth while it is constantly loosing value.
Good Debt
So using the above definition of bad debt, a low or no interest loan for something that appreciates in value, would constitute good debt. Some examples that sometimes, but not always, fall into that category would include starting your own business, paying for higher education, buying real estate, or investing in assets such as old coins or fine art.
Combination
I have to admit that in the past my wife and I have sort of combined the two by using good debt to buy items usually purchased with bad debt, such as those emergencies when an appliance goes out and we have had to buy a replacement using the store no interest financing. Maybe not exactly good debt, but it has helped in a pinch, and if paid back in full before the loan term the financing doesn’t cost you a thing.
What are your thoughts about good and bad debt?
Related Reading:
Why Government Debt Matters to You
What We Buy Used Vs New
Bad Debt
If you have to take out a high interest loan from a bank, a payday loan, or charge your credit card for something that will depreciate in value to zero, that’s bed debt. Think new cars, clothes, charging for a vacation, appliances, furniture, etc. It is almost always best to save up and pay in cash for these types of things, or you will find yourself paying way more for something than what it is worth while it is constantly loosing value.
Good Debt
So using the above definition of bad debt, a low or no interest loan for something that appreciates in value, would constitute good debt. Some examples that sometimes, but not always, fall into that category would include starting your own business, paying for higher education, buying real estate, or investing in assets such as old coins or fine art.
Combination
I have to admit that in the past my wife and I have sort of combined the two by using good debt to buy items usually purchased with bad debt, such as those emergencies when an appliance goes out and we have had to buy a replacement using the store no interest financing. Maybe not exactly good debt, but it has helped in a pinch, and if paid back in full before the loan term the financing doesn’t cost you a thing.
What are your thoughts about good and bad debt?
Related Reading:
Why Government Debt Matters to You
What We Buy Used Vs New
No comments:
Post a Comment
Agree? Disagree? Questions? Leave a comment!