Understanding Good Debt and Bad Debt

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debt-and-bad-debt/
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Taking a loan is common these days, it not only
helps you in emergencies but also helps to
eliminate your temporary cash crunches. But
before you borrow, its very important to know a
few things, of which knowing your exact
requirement and analyzing your self for the
repayments are the most important ones.  Some
themes situations become unskippable and availing
a loan is the only solution. But to avoid turning
your debt into bad debt, there are few things
which you should know. Being unaware of these
things can lead to a big financial mess. So,
lets discuss those ones. 
https//financebuddha.com/blog/understanding-good-
debt-and-bad-debt/
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Knowing the Difference Between Good Debt Bad
Debt
https//financebuddha.com/blog/understanding-good-
debt-and-bad-debt/
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Good debt - is also loans but it is mostly a
sensible investment for your future or the one
which makes your financial status stronger in
long term. A good debt never has a negative
impact on ones overall financial position. In
general, good debts are the ones for which we
have a genuine reason to avail of.  For example,
taking a loan to purchase a home or a car be
considered good debt. One of the reasons to call
it a good debt is- after the full repayment of
the loan amount you will get the ownership of
that particular house or car. So, it is worth
going. 
https//financebuddha.com/blog/understanding-good-
debt-and-bad-debt/
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Bad Debts - are the one which is not worth its
value and mostly drains your money. Bad debts can
also be defined on the basis of the loans that
have no real prospect to go for. The interest
rates are also high which results in high EMIs.
https//financebuddha.com/blog/understanding-good-
debt-and-bad-debt/
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Why it is important to avoid Bad Debt?

• The interest rate for unsecured personal loan and
  credit cards are unconditionally high. Hence, it
  is important to prevent these loans from turning
  into bad debt. To avoid such condition one should
  think and analyze a few things before applying
  for the loan
• Is the availing of loan really important? Are
  there no other options?
• Compare the interest rate for the loan which you
  are looking for with all the lenders.
• Analyze your repayment capacity before you apply
  for any loan amount.

https//financebuddha.com/blog/understanding-good-
debt-and-bad-debt/
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Understand and Analyse the loan before you go for
it!
Not all loans are bad debt, as said above some
debts are worth going for as in the end, you get
the value in return for which you paid.  If the
loan which you are planning to avail, cannot be
justified in terms of requirement, purpose,
interest, and repayments, such loans are always a
bad loan. A very good example of bad debt would
be to take a loan of 4-year tenure for buying a
flagship smartphone that would become outdated
within 2-3 years of its launch. Nothing about
this loan is justified, except that it is a
wastage of money.
https//financebuddha.com/blog/understanding-good-
debt-and-bad-debt/
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What to do if You are already Trapped in Bad Debt

• Go for Refinance or a Debt Consolidation Loan
• Talk to Your Lender
• Ask Your Lender for Settlement

https//financebuddha.com/blog/understanding-good-
debt-and-bad-debt/
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Thank You!
https//financebuddha.com/blog/understanding-good-
debt-and-bad-debt/