Good Debt vs Bad Debt


prud1We all have debts each and every month. But there are debts that work towards a healthy financial future, and debts that hold you back and erode your credit rating.

Let’s explore good debt vs bad debt.

Bad Debt.
This would be something like a credit card balance that keeps rolling over month after month. You may be just covering the minimum balance. Even as you hit click on your online payment or drop that cheque in the mail, over the long run, this type of debt is frowned upon by the credit rating powers that be. By not paying off those credit card balances, it tells potential lenders you are maxed out on debt, and not capable of handling further debt.

Buying what you need vs what you want.
Borrowing to buy a new piece of electronics, or cell phone is definitely debt that needs to be questioned. You should always ask yourself, “Do I really need this? How will this purchase improve my financial situation?”

Good Debt.
You’re starting a new job. It’s a job with great potential but unfortunately it’s not convenient to transit and arriving on time each day to work. You decide to borrow to buy a car. This is good debt. You’re investing in your future. Now, however, if you buy a car that is too expensive for your budget, you’ve shifted back into bad debt.

Investing in your Future.
Real Estate. Buying a home that matches your budget and doesn’t make you “house poor” is good debt. You have looked at your city, and purchased in an area that is on the rise. By and large real estate is almost always a good investment, but you need to not buy over your head. A property that is not properly maintained will end up becoming much more of a financial drain should you eventually wish to resell or rent that property out. But, just with the example of buying a car you can afford, buying a home within your budget is definitely smart investing and falls under the category of Good Debt.

Borrowing to purchase a new set of clothes for job interviews is an example of good debt and investing in your future. Designer labels or clothes that are priced way beyond your budget aren’t necessary and the return on that investment is questionable.

Education. Borrowing to take classes which would increase the likelihood of being considered for a job is definitely another example of forward thinking good debt. But have a plan in place. Choose classes that will make you a more sought after candidate; classes that all weave together as a program that says you have an area of expertise which can be used in the marketplace.

Good debt is common sense debt.
We all know, deep down, whether a purchase is frivolous or a logical place to spend your money. Anytime you can borrow at a lower interest rate to pay off higher rate debt, it’s considered good debt. Any purchase requiring debt that can help improve your financial situation should definitely be considered good debt.

Often a loan will free up money that can be used to make a good debt purchase. The equity you have in your car or truck could pave the way to a brighter future.

If you are looking to get approved for a loan with bad credit, Prudent Financial can help. We provide funding to those in consumer proposals and even undischarged bankrupts.
Call about a BorrowWithYourCar loan or a consultation on your debt situation today at 1-888-852-7647.

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