In today’s world many people often ignore their financial position, assuring themselves that everything will be solved only to themselves.
Thinking that way often leads to a hopeless situation full of debts. A key item in seeking exit from debt bondage is to confess to yourself that the problem is REAL.
Think carefully about whether your bank is helping you or makes it difficult for you to already have a problematic situation. It is better if your bank teaches you how to save money and rationally spend it.
So, with that said, what’s the difference between these 2 kind of debts? Let’s quickly see:
Bad Debt:
The concept of bad debt is born from the fact of taking a loan to buy something that loses value over time. For example: a computer, a car or even everything we buy with our credit card, unless we are among the few who pay the full balance each month (and therefore do not pay interest and do not acquire a debt). Each month the item we have purchased loses value (that is, it is worth less), while the amount we have paid for it grows each month as a result of the interest generated by the credit.
For example: when we buy a car, at the moment of taking it out of the agency, it instantly loses 25% of its value. However, as we have not yet paid for it, the total cost of it increases every month. In this way, good continues to lose value while the amount we pay for it continues to grow.
Good Debt:
The name “good debt” can be confusing. Although sometimes a debt can actually add a lot of value to our life, in others it is simply: “not so bad debt”.
The concept of good debt comes from the use of credit to acquire something that adds value to our life, or whose value increases with time.
For example: the use of credit to pay for a house could be considered as good debt, since the value of the house is projected to increase over time, and not only that, but it also could bring you revenue in the future if you decide to rent it.
So, next time you can take a loan, you can ask yourself: is this debt only going to grow overtime or is it going to give me a good return on investment in the future? If the answer not the 2nd one, then you know that you’re risking yourself into entering into a bad debt.