Debts: Good vs. Bad

Debts have often been misinterpreted as a liability and a trap for consumers. The mutual understanding between the consumer and the individual lender or any financial institution emphasizes more on the commitment to repay the debts which are so untrue. While highlighting the benefits of borrowing, the ease of clearing debts is ignored and that is where people are skeptical and under stress.

The good and bad of debt depend on how consumer-friendly and flexible it is because that decides the longevity of the trust. Remember that lending only from institutions shows up in the credit report.

The Bad Debt

Before we discuss bad debts, let’s understand how it earned the tag ‘bad’. Using debt to finance things for consumption can lead you to bad debt. Confused? More precisely, when you start relying on debts to purchase daily items like food or clothes then it creates an unhealthy financial scenario. And, credit cards are just like inviting more burdens in your life as the repayment of the balance is in full for every month.

Bad debts are the result of consumers opting for something that they can never afford. Buy something only if it’s affordable and not because there are options to do so; this will ultimately question your intentions when you’re running out of funds to repay the principal as well as interest.

The Good Debt

Debts are sometimes considered investments; house purchases and student loans just to name a couple of them. It must never be assessed based on the amount of money borrowed but it should be decided based on the punctuality in closing it, no matter how big or small. Borrowing money with high-interest rates can never be termed as good debt. Nobody ever wants to be in debt for fun; when there is a need, it is natural to seek money from someone but it comes at a cost called a debt with interest. As per the agreement, the debt period starts from the first month of borrowing the money and continues until the closure.

The low-interest rates might look alluring and justified, provided, the stipulated figure is within payable limits for consumers irrespective of their financial stability.

Good Choices: The Deciding Factor

A wise decision is the deciding factor of good debt. Taking on additional debts without the need is a bad idea though. Some people have a tendency to pay off debt with another debt which can backfire if your income is irregular.

Wise decisions = Good Debt + Secure Future

Never overdo, it’s better to avoid too much debt, even if it’s good because at the end of the day your financial health will deteriorate when overloaded with debts. The COVID 19 pandemic has affected the lives of many, both emotionally and financially, but at the same time, it has made people take note of the opportunities that can serve as a great platform to handle the situation smartly. Try switching to other forms of financial services that offer interest-free funds with no credit history and meet your daily expenses.

Exploring is not just about curiosity but an ideal way to a feasible solution for the long-term.