The debts that you incur for increasing your net worth or for business purposes are counted as good debts. But if you’re using the money taken on loan to buy assets that depreciate in value over time without reaping profits will be bad debts. You should not be employing money from loans into certain items that do not help you gain any form of income.
Car
We all like to have our own rides for the daily commute or for going out without having to be in the crowd for trains or buses. Buying a car, especially a new one, costs a lot of money. A lot of us like to think of taking a vehicle loan to buy a new car off the showroom. Paying monthly interests along with the instalments is money wasted on something that decreases in value as soon as you take it out of the manufacturer’s hand. Buying used vehicles on loan does seem nonsensical, but then the loan amount that you will require would be smaller and can be paid off much easier than buying a new car. Avoid taking loans on a new car and try paying cash instead for a used one.
Credit Card Shopping
Credit cards will always be on the bad debts list because of the habits it instils in users. A credit card makes people believe that they can buy stuff whenever they like and can pay it later. Although, that’s how it works, it is not supposed to have a negative impact on your finances and savings. Buying clothes, which are the most invaluable thing to be in debt for, or expensive accessories using credit cards is not a wise decision until you have the kind of money to pay for it later. Else it merely counts as a bad debt.
Loans and credit schemes do help a person when in need. It can be used to turn the state of your finances from pitiful to a well-acquired estate. But using debts to your advantage is the only thing that you would want. Because when the obligations overtake the income that’s when they go wrong, and you might end up being in more debt than you actually earn.