When used intelligently, debt can be of tremendous assistance in building wealth. However, the word debt strikes fear in our hearts, mine included, because we’ve all heard stories about people getting into bad debt and bad thing have happened to them. However, I have just learned an interesting fact I’d like to share. There are two different kinds of debt.
There is actually good debt and there’s bad debt. Good debt includes important things that can really enhance your life or increase your value over time, but you just can’t afford to pay for up front without wiping out cash reserves or liquidating all your investments. Basically these include things like college loans, a mortgage or maybe even a business loan. And this good debt is something that you can definitely afford to make timely monthly payments on.
Bad debt, on the other hand, is debt you’ve taken on for things you really can’t afford, like going on expensive exotic and purchasing other things beyond your means. How do people get into these kind of debts? One of the primary culprits are credit card companies and sheer irresponsible money management.
The amount of personal debt in America and Globally is ever increasing, and a large part of the reason is that credit has never been easier to get. Previously, credit card companies used to issue credit cards to people who could repay them. Today card issuers relish the chance to reel in those who’ll continuously charge beyond their means at 18 or 20 percent. That to me is just wrong.
Credit and debt is definitely nothing to play with. It can work for you or against you. So be very careful how you handle and leverage your debt. Distinguishing between good and bad debt will enable you to afford the things you need in life – while steering clear of the debt “potholes” that are just waiting there to drag you down financially.