Does Good Debt vs Bad Debt really matter?
Debt is a normal part of life for many of us, and it comes in a variety of forms but what do we mean by good debt vs bad debt? By definition, debt is quite a simple concept – a sum of money that is owed. Yet debt varies from one individual to the next, based on a variety of factors such as financial circumstances, lifestyle, family structure and personal choices. As not all debt is created equal, I’m going to break it down further and explore the concepts of good debt and bad debt.
A bad debt is debt for items that won’t go up in value – depreciating assets. Bad debts won’t help you generate an income, so using your credit card for that new Gucci handbag is not a good debt. It also won’t increase your net worth. Think about cars, too. They lose their value, and you’re unlikely to sell it for as much as you paid for it. The same goes for that boat you bought for family weekends, and the wedding you borrowed money for. Now that’s not to say don’t borrow for these items but, where and when you can, it’s always best to pay cash and save on interest charges.