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The Difference Between Good Debt and Bad Debt
In order to manage your finances well, you need to be able to know the difference between good debt and bad debt. While the difference seems logical, most people are unaware of how their credit can be affected by the types of debt they carry.
Good debt is anything you can afford to pay for without having to liquidate investments. This type of debt includes a mortgage, or student loans. A mortgage is an investment and chances are, you will not lose money when you purchase a home. Likewise, a college education is seen as an investment because you will make more money over the course of your life than a person without a college degree.
Bad debt on the other hand, is anything you cannot afford to purchase. Examples of bad debt include credit card purchases or taking expensive vacations. You should never have to accumulate debt from everyday purchases like clothing or food. If you are using the equity in your home or accumulating credit card debt in order to free up cash, you are in bad financial shape.
Most experts agree that your total long-term debt should not exceed 36 percent of your monthly gross income. Long-term debt includes mortgages and credit card debt. You should never have to pay off debt by accumulating more debt; this is how people get into serious debt trouble.
If you feel that you have too much debt to ever recover from, debt negotiation or credit counseling might be a perfect opportunity for you to get back on track. Find out which debt relief service is best for you and get help today!
Good debt is anything you can afford to pay for without having to liquidate investments. This type of debt includes a mortgage, or student loans. A mortgage is an investment and chances are, you will not lose money when you purchase a home. Likewise, a college education is seen as an investment because you will make more money over the course of your life than a person without a college degree.
Bad debt on the other hand, is anything you cannot afford to purchase. Examples of bad debt include credit card purchases or taking expensive vacations. You should never have to accumulate debt from everyday purchases like clothing or food. If you are using the equity in your home or accumulating credit card debt in order to free up cash, you are in bad financial shape.
Most experts agree that your total long-term debt should not exceed 36 percent of your monthly gross income. Long-term debt includes mortgages and credit card debt. You should never have to pay off debt by accumulating more debt; this is how people get into serious debt trouble.
If you feel that you have too much debt to ever recover from, debt negotiation or credit counseling might be a perfect opportunity for you to get back on track. Find out which debt relief service is best for you and get help today!
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