Is your debt is 'Good' or 'Bad'?

People are usually scared and spectacle about the word 'debt'. It reminds them of a feeling of obligation and deficit.


But is it really true? Well their are two types of debts: Good and Bad.


A Bad debt is to finance things that can be consumed. This is the kind of debt that creates an unhealthy financial situation. Credit card debt is often considered bad debt because of the nature of items that credit cards are used to purchase. E.g clothes, restaurants etc.


Even debt used to finance a vacation is bad debt. Even though it might help you feel better and be more productive once you return, a vacation does not appreciate in value.


Debt is good as well. A debt considered an investment is a good one. You’re probably thinking, “How can anything as bad as debt be considered an investment!” If someone took on the debt to purchase something that will increase in value and can contribute to your overall financial health, then it’s very possible that debt is a good one.


For example, a home purchase can be considered to be a good debt. Since homes usually appreciate in value, the mortgage loan to pay for the home is an investment. Another example of a good debt is a student loan taken out to finance a college education. Earning a college degree usually means that you’ll make more money over your lifetime.


Some people consider using good debt to pay off bad debt, like getting a mortgage for $110,000 instead of $100,000 and using the extra to pay off credit card balances. This isn’t a good idea for several reasons. First, repaying debt with debt is never a good idea. Second, it ends up taking longer to pay off the mortgage than it would have otherwise. Third, the higher mortgage increases your monthly payments and the time it takes to build equity in your home.


Use cash to repay debts, not more debt. One must still be careful that don’t take on too much debt, even if it’s good debt. If you’re overloaded with debt, then it doesn’t matter whether the debt is good or bad, it still hurt your financial health.


So now evaluate your financial situation and find out whether the debt you have is good or bad.

Asher Ullah
Sales Representative
Re/Max Active Realty Inc. Brokerage
Mississauga, ON. Ph# 416-568-5932
http://www.estate4tune.com/