subject: Learn More About Debt [print this page] Very bad debts Very bad debts
Bad debts encourage unnecessary spending. They can be easily procured at high rates of interest. Such debts gets accumulated due to borrowing personal loans and over-using credit cards for paying secondary items like clothes, holidays, entertainment etc. When people borrow money to fund items that have no lasting value they get trapped in deep financial crisis.
To control bad debt stop spending unnecessarily. Stick to the financial budget you have created and stop using credit cards completely. Create a shopping list of all the necessary items before buying things. Switch to frugal living till you repay all debts.
Bad yet essential debts
There are some debts that are bad but unfortunately essential. Car and other automobile loans fall in the bad yet essential debt category. The worth of vehicles depreciates the minute it rolls on the road. Moreover, maintaining and running it comes at a cost. Car insurance, servicing, fuel and road tax are some of the few things car owners have to pay regularly. Those who have opted for car loans must try paying of the loan at the earliest by making bigger down payments and increasing the monthly repayment amount. Another practical option is to settle for cheaper car.
Good debts
Good debts have the following traits - it is available at low interest rates and used to fund things which appreciate in value over a period of time. For examples home loans, student loans, business loans and loans to invest in shares and property.
Home loans - A home is an asset. A house purchased today will double in value within the next 1 or 2 decades. Home loans are therefore considered good debts.
Student loans It funds youth education. Student loans are taken with the intention of providing good education. It guarantees good jobs and higher pay packet. Student loans are taken for a good cause; it is therefore a wise investment.
Business loans They are used either to start or expand a business. It potentially helps a business run smoothly and successfully. It eventually improve products and services and increase profitability.
Loans to invest in shares and property Shares and property are assets which help to generate income. However, these loans must be taken only after paying off bad debts.
To be in debt is not bad as long as it does not lead a person to financial disaster. While bad debts drives a person to spend more than their means, good debts become valuable assets in the long run. Think wisely and make repayments promptly.
