So You Think Debt Is Bad? Think Again

It is common notion for most people that upon hearing debt, it means nothing else but repayments. Sure, who would ever think that paying for something per month out of their barely-sufficient paycheck is good? Debt, no matter how people twist its definition or terms still ends in one result- that people have to pay it back. However, not all debt can lead to financial ruin alone. There is bad debt and surprisingly, good debt. What’s the difference?

Bad Debt

Car loans, credit card debt, personal loans, mortgages and so forth are all but deductions of income. However, who are people to blame but themselves. Frivolous shopping when they don’t have any cash or savings to spare and various loans when they could have lived frugally are all but pit falls of financial stability. The end results of these are piles of debt which come with interest rates and other hefty fees.

When people miss payment on any of these, there could only be penalty fees and other surcharges. But if the amount of their debt goes out of control, the worst things that could happen are default which brings forth a tarnished credit history, a revocation of utilities and worst homes, and just the ever accumulating debt from unpaid minimum or interest fees.

Bad credit then means a type of credit where people or borrowers have no chance ever of gaining anything. Although some may pay the minimum or more on time, the money paid is just money lost.

Good Credit

With good credit, debt still means the same- repayment of at least the minimum balance per month and if it is missed, the same hefty penalty charges apply. What separates good credit from bad credit, however, is the fact that there is a big percentage of cash return, profit or income from that typical debt. This is possible through leverage.

When a person has a feasible business venture or investment that could reap him good profits, initially he will have to fund it before he could expect any return. If the only way he can supplement it is through loans then he is getting himself some good credit.

Sure he would have accumulated debt and interest rates with possibilities of delinquency in payment but what makes it good is the fact that he is not merely throwing money down the drain but actually repaying it for a more secure or profitable chance in the future.