Is Debt Really A Bad Thing?

1/9/2020

Out of debt, out of danger. Day off your debt, you deserve to have your own money.

There are two types of debt, good and bad. It is important to understand the difference between Good debt and Bad debt.

Let me first start by saying that ideally, the best situation is to have no debt at all. In an ideal world, the perfect amount of debt is no debt.

I say this because even if there is such a thing as "good debt" the fact remains that you still owe someone money and the Bible is always right and makes sense when it says in Proverbs 22:7 that "the borrower is the servant to the lender."

However, in this day and age, it would seem that we couldn't escape the fact of debt. This is unrealistic for most people who aspire to own a home, automobile, or start a small business.

Knowing The Difference Between Good And Bad Debt

The difference between these two types of debt can be distinguished as follows:

Good Debt

Good debt is generally defined as that which generates income and increases your net worth. Good debt typically has a lower interest rate, something you believe will grow in value over time, helps increase your credit history, and is within your budget.

Education
Property
Business loans

Bad Debt

Bad debt is of course the opposite of good debt. This is debt that does not generate any income and does not increase your net worth. Bad debt is typically higher interest debt, not backed by a value increasing asset, unplanned within your budget, and can negatively impact your credit score.

Car Loan
Credit Cards
Store Credit
Cash Advance

Know What You Are Getting Into

Earl Wilson once said, "Today, there are three kinds of people: the have's, the have-not's, and the have-not-paid-for-what-they-have's." Those caught in the sinkhole of debt belong to the last category. Make sure you are not one of them!

If you incur good debt, make sure it doesn't become bad debt. If you have a habit of making bad debt, it's time to end such a bad habit. And if you are in an ugly situation now, fear not! It will come to pass.

Don't lose hope.
Problems are called problems
because they have solutions.

4 Comments

Ronald

7/18/2022 04:35:57 am

I had so much fun shopping, I didn't realize that my credit card debt was growing and now I'm having a hard time paying. I don’t know how I will do to pay the bill.

Ralph link

7/18/2022 10:51:22 pm

Hi Ronald, remember this: If you are in debt, do not think of yourself as poor. Poor is permanent. Broke is temporary.

Below are 5 tips to help you manage your credit card debt level and regain control of your finances.

👉 Set a Goal

Establish realistic goals for paying off your accumulated balance to a manageable level. Monitor your progress (in person, through phone or online regularly to keep you on track.

👉 Create a Spending Plan

Create a spending plan (weekly or monthly) for your income. This will help you live within your means and will give you a timeline on when you can reduce your outstanding balance.

👉 Trim your Expenses to Free Up Some Cash

Keep a record of and categorize your spending to know where your money is going. Review your record and look for opportunities to cut your expenses (i.e., dining out, watching movies, etc.). This will free up some cash that you can use to pay off your outstanding balance.

👉 Pay Off First the Card with the Highest Interest Rate

If you have outstanding balances with multiple credit cards, maximize payments on the credit card with the highest interest rate. Once fully paid, pay off the card with the next highest interest rate. This will save you on interest payments and help you settle your debts faster.

👉 Stop Using the Card

Keep the card out of your wallet so you are not tempted to use it. Paying cash for purchases helps in making you conscious about your spending.

If the problem is severe and if you are falling behind your bills, you may negotiate with your bank or creditor to be able to settle your obligation.

Tecson

8/6/2022 06:42:32 pm

What's the most reliable way to pay off debt?

8/7/2022 06:54:47 am

Hi Tecson! The most reliable to eliminate debt is to avoid spending beyond your means, particularly with credit cards. Ideally, this will allow you to pay your bills in full and on time each month and avoid racking up on balances carried over from one statement to the next.