Good Debt vs. Bad Debt

There are many people out there with little or no knowledge on good and bad debt issues. The point is that many people encounter debt problems on daily basis and should need better information. To this effect, you stand to enjoy this piece of reading since for some important ideas.

The transfer of money between two parties simply describes what debt is all about. It is always accompanied by terms which determines the period for repayments. The mode of payment is also enshrined in them. Debt is always accrued whenever an item is bought. What actually happens is that we don’t seem to recognize this debt if the cost of the item is small and we readily have the capacity to pay.

However, in the event that it requires some bigger amount where we may be unable to pay, there will usually be some long-term debt repayment. Whiles some may require a few months, several others can take you many years. One can’t discount the fact that debt appears an inevitable thing even though many people out there feel just uncomfortable because of the repayment that will be required of them.

Such people will always try to make upfront payment when they buy items. It would be good of you to pay for school fees, drive a used car and even rent your apartment so long as the money is available. Depending on your lifestyle, there are a lot of debts that may come your ways.

You should also be in the know that everything bought either appreciate or depreciate in value over a given period of time. For instance, just the moment after buying a brand new car and taking it away from the dealer’s parking lot, you could lose a significant percentage of value. In such a situation, if the car is sold, the money you will accrue might not even be able to pay for the remaining of your auto loan balance.

At other times, you might have used the car for years before finally selling it off. The value may not be enough in order to cover the actual loan. To this effect you may have to take a loan in addition to make sure the original auto loan is covered. This is a typical example of bad debt. Good debt will rather allow you to make extra money after sales since the item is expected to appreciate over time.

So, to sum it up – Good debts put money in your pocket, bad debts take money out from your pocket (as taught by Robert Kiyosaki, Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money–That the Poor and the Middle Class Do Not!)

Image by svilen001.

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  • Calculating debt to income ratio is as simple as adding up all of your debt and subtracting it from your income. Some calculations may exclude things like mortgage payments and property taxes, but to really get a complete picture it’s best to include everything. like
    Minimum credit card payment, Student loans payment, Child support, Any other monthly debt obligations and many more.

  • It is surprising that most people still do not understand what is the different between good debt and bad debt. I think what Robert Kiysokai mentioned is a simple and easy to remember way of defining good vs bad debt.

  • Money Advisor

    Indeed,

    I see what Robert teaches and has been taught is pure logic and easy to put into action.

  • Cary Hyle

    Context of this post only serve to reinforce my reasons for paying close attention to every word you say.