There is an overwhelming assumption that all debt is bad. However, there are some cases when debt is actually a positive thing. While we don’t want to be in debt for the rest of our lives, some investments may require temporary debt in order to build credit over time. Our team at Amherst Toyota is setting out to distinguish between good debt vs bad debt.
In today’s financial landscape it’s nearly impossible to avoid debt of some kind. The important thing to determine, however, is which kinds of debt are positive and negative. When folks are spending money they don’t have on things they don’t need, that often results in the most negative debt of all. When a student needs to take out a loan for college tuition, however, this helps to establish or build credit and is seen as an investment in one’s future. This distinction is vital when using credit or taking out a loan.
What is good debt?
While bad debt involves purchasing things you don’t need with money you don’t have, good debt is quite the opposite.
Good debt often refers to making purchases on things you need when you don’t have the money to pay for it upfront. However, it also means that despite needing to liquidate possessions or take out a loan, you can still make monthly payments to eventually clear this debt. These items tend to be for college loans, car payments or mortgages. These are necessary items that may require taking out a loan.
What is bad debt?
When you want to take a vacation, buy an expensive handbag or upgrade your vehicle when your current one functions perfectly well, that’s totally fine when you have the money on hand to afford it. However, if you have to rely on credit or money you don’t have to obtain these items, you might find yourself in trouble.
The most difficult form of debt often comes from overusing or inappropriately using a credit card. Not only are you spending money you don’t have and racking up bills you can’t afford, you’re also incurring interest. While loans and credit card usage can be incredibly helpful, it is important for folks to not live outside of their means when making purchases or investments. To learn more about building credit or obtaining a bad credit car loan, contact the team at Amherst Toyota today.
- Published: 2016-08-19