Debt: the good, the bad and the ugly

Posted on: April 29, 2013

The less debt you have the better. That being said, you will hear people talking about good debt versus bad debt.

Put simply:

Good debt

  • ggod debtUsed to purchase an asset, like a house or investments.
  • Ideally these are appreciating assets, something with real value that you could sell if you needed to clear the debt.
  • So while a car loan has an asset attached to it, it is depreciating, so something to be cautious about.

Bad debtBad debt lady

  • Comes from buying ‘stuff’ and living beyond your means.
  • If you are running a balance on your line of credit or your credit card that originated from purchases that you didn’t have the money for, this would be bad debt.

Ugly debt

  • Can be either good or bad debt spinning out of control.overwhelmed debt
  • If you aren’t sure how much debt you have, if you have balances on multiples credit cards, or if you are using your line of credit to pay off your credit card or your mortgage.
  • Take a deep breath, get honest with yourself, sharpen your pencil and make a payback plan before it’s too late.

When interest rates are low, people talk about ‘cheap money.’ You might be tempted to take on debt now because you think it won’t cost you as much as when interest rates are higher. Maybe, but if you aren’t financially or emotion-ally prepared with a plan to pay down your debt, you need to remember that overdue payments, damage to your credit, sleepless nights, stress and lack of freedom all add to the cost of borrowing.

It may be necessary to incur debt to attain your goals (e.g., a mortgage for a house). That’s okay. The key is that you stay in control of your debt, that you have a plan to pay it off—and you stick to it.

Responsible Debt ManagementimagesCA76ZEFG

  • If you can’t pay off your credit card each month, don’t use credit.
  • Your Line of Credit isn’t your money.
  • Don’t rely on a lender to tell you what you can, or can’t afford.

Get Out of Debtdebt freedom

No matter what the reason for the debt, so-called ‘good’ or ‘bad,’ debt limits your options. It is as simple as that.

 

(From UNSTUCK – How to Get out of Your Money Rut and Start Living the Life you Want by Money Coaches Canada co-founders Karin Mizgala and Sheila Walkington)



Category(s): Budgeting and Cash Flow, Debt, Relationship to money
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One Response to Debt: the good, the bad and the ugly

  1. Ira Smith says:

    Excellent advice. Short and to the point.

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