An Overview Of Bad Debts And Good Debts
People take debts for various reasons such as to pay medical bills, business expansion, household items and repairs, purchase vehicles, and mortgage. It is not an offense to take loans as long as it satisfies the needs of the user.
However, recent research from financial experts found out that debts may be split into two categories. These include Good debts and bad debts.
- Good Debts
These are loans taken to facilitate the generation of more income to the borrower. One should think and have a plan before taking a loan to avoid misuse of funds. Financial experts advise that taking loans without plans could be harmful to the borrower. They include but are not limited to:
Investing In Real Estate: The real estate industry has continued to be one of the leading income generators in the world. Borrowing loans for such investments provide a secure future. This option may involve taking a loan to build a retirement home.
Starting Up A Business
Many people in the world get rich through investing in a business. Taking loans to start up a business automatically makes one an entrepreneur. The business helps in loan repayment and later profits. Note That: It is not guaranteed to make profits after starting up a business.
When people take loans to buy cars for their transportation, the step is considered good debt. This improves punctuality at work and meetings.
Investing In Education
Educational loans are considered good debts. Apart from enabling one to secure a job, education has long-term advantages. There is no regret when one takes a loan to invest in education. Currently, most countries offer student loans to finance students who cannot afford quality education.
2. Bad Debts
As the name suggests, bad debts are loans to be avoided. Once acquired, they leave the users with regrets and payment pain. They do not add value to the lender.
Bad debts are generally loans taken for necessary and luxurious staff that are not important at that time. For example: taking a loan to purchase new clothes is bad debt. Clothes are important but not always necessary especially when one has a full wardrobe.
Others may also take loans for expensive vacations and foodstuffs. As long as going for a trip will not have an impact on your life, it is not important.