The word “debt” has such a negative connotation to it that a lot of people do not realize there actually is such a thing as “good debt.” It may sound wild at first, but debt can really help boost credit scores. Those who never go into debt can never build that credit, so when they go to apply for loans or try and finance something, they’re instantly denied. Let’s take a look at the difference between “good debt” and “bad debt.”
Good debt has the ability to build wealth in the long term. Going into debt for student loans, for example, can lead to a better career in the future. A debt like a mortgage can appreciate over time depending on the market, so its not bad to have that kind of a debt hanging over you. If it can positively contribute to your life or have the chance to appreciate on any of your assets, it can be considered good debt.
Bad debt, on the other hand, is also known as uncollectible debts. These are the debts that empty your bank account and ruin your credit so you cannot apply for additional cards or finances. Debts that have high interest rates, like credit cards and cars, are the most dangerous, so make sure when negotiating or applying for anything that might bring you into debt, you get the lowest annual percentage rate possible.
Anything that delays a debt closure because it keeps accumulating will fall into the “bad debt” category. Just remember that any bad debt can be used intelligently based on how you handle it. Don’t panic when going into debt and instead, have a plan ready for how you’re going to deal with it.
