Believe it or not there is a difference between good debt and bad debt. Not many people realize this as they just see a debt as something that they have to pay back and that the two different kinds of debt are completely different. Lets take a look at the two and you can decide if your debts are good or bad.
A good debt is an investment, for example a school loan is a debt that offers value as with an education you will be able to (or your child will be able to) get a better job using that education. A mortgage is considered a good debt to have as you get a house and you have something of real value when you have finished paying it off. A Real Estate Loan or a home equity loan to consolidate debts where you have 28% interest on a credit card and you can get a home equity loan at 6% this is considered a good debt. Especially when the 6% home loan is tax deductible
On the other hand if you stick with the credit card debt and you will have picked yourself up a bad debt. You very rarely have anything of value to show for your credit card debt, clothes and food have no long term value in them, for example that nice shirt that you got last week was worth a lot less when it left the store in your bag than what it is now on your back.
A lot of people think that purchasing a car is a good debt but when you take into consideration that a car depreciates in value by a massive amount in the time it takes you to pay off the loan the asset that you have at the end of the loan is worth much less than you paid meaning is is a bad debt.
These are just a few examples of good debt and bad debt it isn't as complicated as it sounds really is it?
