What Is The Difference Between Good Debt And Bad Debt?
You hear people talk about good debt and bad debt
, but what is the difference and what do they mean by these terms? Debt can help you in some cases and in others it will bring you down and cost you money unnecessarily. It is important for you to know which is which and what types of debt will work for you and what will work against you.
Some people refer to bad debt as a debt that has been written off or was due long ago. While that is bad debt, that is not necessarily the debt that the financial experts are referring to as bad debt. Undersirable debt is the debt that comes with interest that is not tax deductible. This would be any credit card, unless you happen to find one that is interest free. If you do, I would be interested in knowing about it. Consumer credit cards, car loans and personal loans are the most popular types of loans that do not have tax deductible interest and most anything purchased with this type of lending will depreciate in value.
The two types of loans that are considered good debt are mortgages and student loans. The interest on these loans is almost always tax deductible and a home and an education have a good chance of appreciating over time. That is not to say that you should go out and get either of these types of loans today because they are considered good debt, but you do not have to be in hurry to get them paid off if you have them.
Really, the point here is if you have both good debt and bad debt, the bad debt should be addressed first. It is the bad debt types that tend to have the higher interest rates anyway. They are the ones that are going to cost you money and affect your credit if you have a lot of it. If you have credit card debt and are looking for a way to get it organized and paid off, a debt management plan is a great option. All of your unsecured debts are consolidated without a loan and can be paid off in 3 to 5 years. Get a quote for debt relief today.