Introduction Of Bad Debt
Generally public never aware of such financial terms whether its credit card
, credit card debt, good and bad debt, and much more. Bad debt is defined as an amount that is written off by the business as a loss to the business and classified as an expense because the debt owed to the business is unable to be collected, and all reasonable efforts have been exhausted to collect the amount owed. Usually it occurs when the debtor has declared bankruptcy or the cost of pursuing further action in an attempt to collect the debt exceeds the debt itself.
In general usage bad debt is considered as a money lost by a business which is why it is regarded as an expense. When consumer looks at their bills every month, consumer may feel overwhelmed by the amount of money that they're spending on debt. Sometimes debt might appear like a trap that consumer likes to come out of the situation on their own way. But usually not all debts are bad some are considered as good debt also.
We will understand this fact by differentiating good and bad debt through examples. If consumer took on debt to buy something that will increase in value and contribute to consumer's overall financial health, then you can consider that debt a good depending on the kind of situation you carries it, for example, a home purchase can be considered as a good debt, as it will boost you financial condition. Another example of good debt is student's education loan. In the same way, there's bad debt too. Bad debt is a kind of debt that creates an unhealthy financial situation. Also consumers should know that credit card debt is often considered bad debt due to the nature of items that credit cards are used to buy them. Suppose the consumer is using the credit card for buying items like clothes and food, then has to pay the balance in full every month.
by: Jayden Julia
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