Financing Feedback: When does Good Debt Become Bad?

Wednesday, December 30, 2015, AM | Leave Comment

When it comes to debt, there are certain types considered “good” and some that are “bad.” In general, good debt is debt that will help you earn more money over the long term, while bad debt tends to be the debt you incur when purchasing consumer goods.

However, so-called good debt can still turn into bad debt if you’re not paying attention. Think carefully about taking on any type, and make sure you know what to expect with each.

Financing Feedback When does Good Debt become Bad

  • Educational Debt

    The debt that comes from taking out student loans is usually seen as good debt.

    College graduates or those who learn a trade skill tend to make significantly more money over the years when compared with high school graduates alone.

    Educational debt can become a burden when it exceeds your earning potential.

    For instance, if you take out loans to get a Ph.D. in medieval history only to get a job as a daycare provider, you’ll have a hard time paying off your debt.

    Before you take on more student loans, ask yourself whether the degree you earn is going to help you earn more money or progress in your career.

  • Business Debt

    It can be hard to start up a business, and many people turn to loans or business credit cards when getting started.

    If the business idea flops, it can be difficult to pay those loans back.

    Before you take out a significant amount of them, you need to have a solid business plan and have done the research necessary to make sure your business will succeed, at least enough to take care of your debt.

    Seek out experts to help guide your business the right way. If you’re taking out very large loans, ask yourself how those loans will be repaid.

  • Real Estate Debt

    In the past, it was almost a sure thing that a home you purchased would appreciate in value, especially if you lived in it 10 years or more.

    These days, it’s not always the case, and market fluctuations can sometimes mean you owe more on a home than it’s worth.

    Real estate can be thought of as a good investment because you’re building equity while paying for a basic need, but you shouldn’t necessarily think of your home as a sure way to get riches in retirement.

    The idea of foreclosure on your house might be frightening, but a bankruptcy attorney in Kansas City at Wiesner & Frackowiak, LC reminds it isn’t your only option.

    With a bankruptcy trustee, it is possible to come up with a payment plan to pay off your mortgage more quickly and block a foreclosure completely.

It’s easy to see how something you thought was good debt can turn bad. Whenever you think about taking on money you’ll have to pay back, remember you’re taking on a risk and that you need to be willing to stay focused on repaying it.

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