Good Debt vs Bad Debt

jerry · Posted: Thu Nov 16, 2006 1:29 am Post subject: Good Debt vs Bad Debt

In today’s world it is impossible to live debt free. Most of us are not able to pay in cash for our house or for our children education. But at the same time many of us let debt get out of our hands.

Ideally experts believe that your total monthly long term debt should not go beyond 36% of your total monthly gross income. It is very easy to spend more than what you can actually afford, especially when you pay from your credit cards.

Obviously avoiding debt at any cost all the time isn’t the best idea, if it means taking out cash from your savings for rainy day. But it is important to understand the difference between good debt and bad debt.

Good Debt: This includes anything that you need but cant afford without cashing in your savings. Borrowing for your home or education is not a bad idea. But make sure that you don’t borrow that what you can afford.

Bad Debt: This includes anything that you don’t want but can’t afford it. Best example for this is credit cards debts as it carries the highest interest rate.

Sometimes borrowing is not a bad idea, but a lot of times it is.

Thanks,
Jerry

colin · Posted: Thu Nov 16, 2006 2:42 pm Post subject:

Hi Jerry,

You have raised a very important topic.

Nowadays it is far too easy for a person to spend more than he earns, especially when one pays by credit cards.

It has been estimated that average household in US with at least one credit card carries nearly a $9,500 balance and personal bankruptcies are on the rise in recent years.

For all these reason it is very important to plan your spending, decide which debts are necessary and limit the amount of debt you have at any particular time to avoid falling into a situation where it becomes very difficult to come out of the burden of debts.

Colin

All times are GMT - 7 Hours

Page 1 of 1