Bad Debts And Bad Debt, What’s The Difference?

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Good debt and bad debt? Is there any difference, are not debts always debts? There is much controversy on the subject, but there is difference yes, and this difference is very important for the financial life of any economically active citizen. Contrary to what many people imagine, making debts can even benefit the consumer in many ways. To contract debts without necessity and to compromise the familiar or personal budget, that yes is harmful and brings irreparable damages in the financial stability of the person.

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When you get good debts , it helps you maintain your credit history, increase your score, and keep your finances healthy. Are there any debts that can be classified as good? Yes, real estate financing, student finance and business loans (working capital) are good examples of good debt .

Good debts are acquired to add value, when you buy a property and pay the monthly installments, even having made a long-term financing, the value of the property over time will increase, unlike a car that when financing, the consumer already loses at least 10% of the withdrawal value of the vehicle.

A student loan is also a good debt , during the university time the student will perfect himself to become a skilled professional in the segment that is studying, this way the investment was personal, it is worth it.

The business loan is also good “good debt example”, when borrowing money for investment in restructuring, enlargement or increase production, the entrepreneur seeks with the loan, add value and not loss.

So we can conclude that contracted debts that generate money and increase our equity or that represent investments that will bring some short, medium or long term financial returns are good, taking the rest of the examples are bad debts .

When taking out a “personal loan or financing,” they must be made with concrete goals to help, to improve, to expand. The “loans to pay debts” I even consider it good, since in requesting this type of loan, the consumer really intends to consolidate all his debts, decrease the debtor balance and interest, and have no difficulty paying the new debt.

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Bad debt

Bad debt

 

The bad debt it harms the financial life and it destroys the credibility of the citizen in the hour of obtaining any type of credit in the square. When a credit card is used to pay for everyday goods, such as lunch, coffee, food or utilities, the person is actually accumulating bad debt. This type of debt can be paid with cash, with the credit card these debts are only being deferred for later payment, it is only valid if the consumer has the positive register, to build a financial history of payments up to date.

Credit to do what you want or pay off debts

Hiring debts you can not afford, you do not even have to say it’s bad, it sucks. Other examples: If you take the credit card statements from defaulters, you will notice that they are using the cards to pay for extended weekends with girlfriend and friends, disco nights, designer clothes, bar fees, and all sorts of superfluous purchases. It is important to keep a spreadsheet for you to analyze where you are spending your money and correct any slip before it is too late.

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By investing in good debt, you are creating a valuable track record that can prove that you are financially responsible. Acquiring bad debts can lead to delinquency which in turn can lead your finances to uncertain and dubious paths. Control your finances if you are not careful of your financial habits the belt can get very tight.

Check out the video on ” Good Debt and Bad Debt ” by TopMoney in the partnership between Dinheirama and InfoMoney Portal.