Debt is a four-letter word to many people. It’s become the primary source of stress for a growing number of consumers. But unless you’re independently rich, debt is usually a necessity if you wish to make a major purchase like a home or an car.

Consumer debt is booming, and so are delinquencies. More and more consumers are looking at credit counseling to get their debt in check. And even with the tighter restrictions on bankruptcy, people are still filing. This data paints a harsh picture of debt, yet people still take out loans and use their credit cards.

The fact is that debt is not such a bad thing in and of itself. It can benefit us in getting the things we need and want. The issue comes with taking on too much debt. If we’re not careful, we can get in over our heads. And once we do, it becomes harder and harder to get out of debt.

By learning about debt and understanding what is an acceptable level of debt based on our income, we can steer clear of the debt trap all together. And if we’re already in too much debt, there are steps we can take to reduce it.

Good Debt vs. Bad Debt

Yes, there is such a thing as good debt. There are just a few types of debt that fall into this category, but it’s important to make the distinction. Some examples of good debt are:

Debt incurred to buy a home – Owning your own home has numerous benefits. But the reason that this is considered a good debt is because a home is an investment. As long as you keep up with the mortgage payments, you put yourself at an advantage by entering into debt because your home will normally appreciate in value over time.

Student Loans- Having a college education can be a great investment because it allows you the opportunity to earn substantially more during your career. It’s possible to re-coop the cost of college many times over.

Business Loan – though starting a business can be a high risk venture, the rewards in the form of profits can be substantial. However, some of the assets you purchase will depreciate rather than appreciating. But for practical purposes, you can consider this a good debt.

There are numerous examples of bad debt. Here are a few:

Car Loans – For most of us having a automobile is essential, even though it’s still regarded as a bad debt. Because your vehicle depreciates over time, you won’t be able to recover your investment when you’re ready to sell it.

Credit Card Debt – Although credit cards can feasibly be used to purchase things that appreciate, they are in general considered bad debt because of the types of things that are usually bought with them. The overwhelming majority of credit card purchases are things that lose value.

Personal Loans – Most personal loans are taken out on high tickets items such as furniture, appliances, or even vacations. Many times these are things we need, even vacations help us recharge our batteries and become more productive. But none of these things appreciate in value, so they are considered bad debt.

Just because something be be considered good debt doesn’t mean it cause serious financial problems. It’s important to maintain our good debt at a manageable level. Lenders take our income into consideration when lending us money for this reason. But it’s also essential that we look at our individual situations and not borrow more than we can comfortably repay.

On the other side of the coin, bad debt is not necessarily taboo. There’s no harm in taking on some bad debt to get the things we need and want. But the smart thing to do is keep it to a minimum, only using it for things we really need.

Have you run out of options? Want to be free of debt in the next 12-36 months? These Debt Help Services can enable you to become debt free. Learn how at www.HelpWith-Debt.info.

Tags: Debt

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