The Good or The Bad: Which Kind of Debt Do You Have?

Debt. It’s a scary word, sometimes implying financial irresponsibility, and it’s the first topic Free Sale Appraisal enquire about when you’re shopping for a new home.

But did you realise debt isn’t all bad – there are forms of “good” debt that can help you acquire the assets you need to build financial stability and to increase your net worth.

Good debt helps you build for the future. Home or property investments, paying for college education and self improvement are prime examples of good debt. Put simply, it works like this: you are spending money to make money. Investing funds into something that will likely increase in value or increase your wealth is a solid plan.

Examples of ‘Good’ Debt

  • Buying a house, increasing its real property value, and reselling it at a higher price than you paid for it.
  • Student loans: financing an education that will eventually lead to a career that earns you a high salary.
  • Acquiring loans to begin a business is also another type of good debt, with the understanding that the business’ worth will increase in value (again, earning you a future stream of dependable income).

And the ‘Bad’?

Essentially the opposite of good debt, it often rears its ugly head in the form of credit card payments with outrageous interest rates. Paying for your dream trip to Paris on a credit card could lead to trouble; the psychological temptation to “pay for it later” can hurt you (and your credit) in the long run. Keeping a balance on a credit card is seldom wise.

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