Not all debt is bad. A housing loan for instance is a good debt because when it is paid off the borrower is left with a valuable asset.
This definition makes it seem like debt is neither good nor bad. A closer look at the concept of debt, however, can reveal that it can have positive or negative consequences, which depends on how the borrowed money is used.Good debts create value and help increase net worth. Good debts include housing loans, real estate loans, education loans and business loans. All of these have the potential to generate income over time.Not many people can afford to pay for a house with cash.
Being the head of one’s own business can be a motivation to work harder. However, capital is needed to jumpstart a business. Since it has the potential to build wealth, a business loan can be considered a good debt.Conversely, bad debts are those that are used to purchase goods and services that have no potential to increase one’s net worth.Credit cards are usually used to purchase disposable items that easily lose value over time. The same goes for store cards.
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