What is “Good Debt?”: An Explanation of How to Spot Good Debts
If you have heard of good debt and bad debt before then you should know that such debt is a sensible investment for your financial future.
Your good debt should leave you way better off in the long-term and it should also not have any negative impact on your financial position.
With this kind of loan, you would have a clear reason for taking the borrowed money on and you will also have a realistic plan for paying it back as well.
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Here are Some Examples of Good Debt
There are a few examples of good debt.
This could include taking out a student loan to pay for university because when you graduate, you can then go on to make more money.
The great thing about having a student loan is that the interest rates tend to be relatively low.
A mortgage is another example of how good debt can be used to your advantage.
If you get on the property ladder then you will have your own home to live in and when you have paid your mortgage you will have one of the best assets you could hope to have.
Lastly, another example of good debt is investing in your very own business.
If your business does really well then it could end up being worth way more than the loan you took out.
Avoiding Bad Debt & Examples of Bad Debt
Unfortunately, bad debt does exist, and it is vital that you talk about it with someone if you feel as though you are facing financial difficulties.
Bad debts can be ones that drain your financial wealth, are not affordable or do not pay themselves in the future.
Bad debts won’t have any kind of repayment plan and they also run up when people make impulse buys.
Some examples include a luxury holiday that you cannot afford the repayments of, or a brand-new car that you just don’t need.
New cars lose value the second you drive them off the lot, so instead of getting into debt, put the work in and try to save up first.
If you do this then you may find that you are able to pay for the car without having to take out any kind of debt at all.
How do you Avoid Owing Bad Debt?
If you want to avoid bad debt, then ask yourself some of these questions.
If the answer is no to any of them, then there’s a high chance that the monies owed is bad.
- Have you shopped around to get the best deal?
- Are you borrowing money as cheaply as humanly possible?
- Can you cope if interest rates were to rise?
- Do you understand the terms and conditions?
If you are in bad debt and you do not see a way out, then Bankruptcy Canada can help.
We can work with you to make sure that you are comfortable with the solution you have been suggested, and that you understand every aspect of your repayment plan.
Contact us today to find out more.