Types of Good Debt

Kimberly Watson, Editor in Chief
March 20, 2012 /

The definition of bad financial debt is that it is often acquired through your expenses exceeding that of your income! It is a situation that could be caused by circumstances beyond your control, for example losing your job, or an emergency. You were therefore, required to use your credit card or another facility to pay your expenses.

Due to the economic conditions that have prevailed, many Americans have become unfortunately, familiar with bad financial debt. It is a debt that is unsecured and increases because of the usage of credit cards to live beyond your means. The charging of luxury items and vacations for example, can lead to your being able to afford, only the minimum monthly payment.

On the other side of the coin, is the termed good financial debt, which is designed to help you achieve a positive result within a specified period through your assets and increasing your net worth. It is the type of indebtedness that financial advisors encourage their clients to become involved. A usual example of a good financial debt is a mortgage, with the provision that it is taken at a favorable rate of interest. It provides for payments that are based on your affordability, with the potential of home ownership over a reasonable time.

Another good financial debt option is purchasing an automobile, again dependent on the offered interest rate, its condition, fuel consumption and that it meets your cost effective related transport needs. It is realistic that the value of vehicle will depreciate, but this is somewhat offset by the necessity of having a vehicle and its relative conveyance value for a family.

Education could be regarded as a good financial debt, on the basis that the funding of this education will enable self improvement. This would be determined by an increased income, with potentially greater job opportunities, even transferring to a more opportunity motivated career path. Learning from an accredited education system, is an investment in your future and this debt could be well worth your endeavor.


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