Good debts and bad debts

Nowadays it is almost impossible to live without debts. Nearly every person runs into debt today. There is a very wide-spread point of view that having debts is not good. In principle that is true but not always.

Having debts can be good. This may sound weird for the person, who is up to his neck in debts and is working hard in order to have the possibility to pay his debts and finally to breathe freely.

Why do people get into debts? There are several reasons. First of all, very often they do not have enough economic knowledge to calculate how much money they overpay for commodity on credit. The second reason is a lack of financial discipline. People do not want to stint themselves in something during some time in order to buy something for cash down (of course, we are talking about some small purchases). They just shift off all responsibility and want banks to do all calculations and to remind every month about the payment of the debt. Of course, in the case when the question is about real estate, credit is the only way out of the situation.

Nowadays the number of people who run into debts increases all the time that is why it would be useful for most of them to have some ideas about good and bad debts. The idea of having debts is not always clear for those, who take money on credit. They realize their mistakes, but they do it too late. Such people keep to the idea that their debts make them poorer, when proper crediting can be the best way to financial well-being. It is possible to define good debts as the debts which can be useful in future – in financial or any other way. Such debts can be called investments. That means that good debts are the debts which will make profit sooner or later. Here is one of the wide-spread definitions of bad debts – it is when you buy something which immediately go down in price and will never go up in price again. For example, the price of your car is already going down for 10 – 15 % when you leave the motor show. Good debts can bring in constant income in contrast to bad debts. For example, you buy a house the price of which is going up. Or you invest money in your education. Such investment will give you the opportunity to have a prestigious work, which will bring you a good income. One more example of good debts is when you take money on credit in order to increase the growth of your own business, because in future you, as the business owner, will have income.

Speaking about bad debts, there is no repayment in this case. The only thing that you get is comfort, which however doesn’t last for ever. Especially dangerous are credit card payments. As a matter of fact, today the modern society leads badly every person into temptation of using the credit cards. With all their comfort credit cards can play a dirty trick on their owners because very often the person who doesn’t pay for cash down hasn't the slightest idea of the sum which he has already spent. The credit card payment is the easiest way to get into bad debts. The payment of such debts can take years.

What kind of conclusion can we draw now? The best way to pay for the goods for the house is to pay for cash down, little by little collecting the sum of money that you need. In the end such purchases will cost cheaper and also you won't have a heavy burden of unpaid debts. That is why, before you take a credit ask yourself if this credit is good or bad one.


Articles

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