There are many people that think about debt as nothing but a bad thing. While you can quickly get into trouble with too much debt, debt is something that isn’t so cut and dry. In fact, you can make debt work for you and that is when you can see that debt is sometimes beneficial. Knowing the difference between good debt and bad debt is vital. Mark Dicus & Company is here to talk about the difference between good debt and bad debt, so you have the information needed to make a smart financial decision.
Knowing What Debt is Good is Important
If you have taken on debt that has the ability to help you attain your financial goals, it is considered good debt. Part of what makes debt good or bad is the way that it is managed. You need to be focusing on whether or not the payment makes sense, pay the payments on time, using your credit responsibly and so on. Some examples of good debt include:
– Mortgage: Taking out a loan to purchase a house will help you build your personal wealth. They are building equity and can lead to a higher net worth. The interest paid on a mortgage is usually tax deductible which is helpful around tax season.
– Student Loans: Some people find that it is necessary to finance their education. This can be good debt because it can assist you in finding employment that will have potential earnings. Student loans often have a lower interest rate as well which is usually tax deductible.
– Small Business Loans: When your business is just getting up and running, a small business loan makes sense. You need to weight the financial risks of your business before taking out a loan though.
– Personal Loans: Sometimes, taking out a small personal loan to consolidate debt for a lower interest rate can be beneficial. If it is an unsecured loan, you won’t have to have collateral to secure the financing.
Understanding Bad Debt
If you are taking on debt that isn’t working with you or is difficult for you to repay, it isn’t good debt. You always need to consider your debt to income ratio before taking on any debt. Some examples of bad debt include:
– Unaffordable Debt: It is important to make sure you can handle the payment on any debt that you take on. If you can’t afford the payment, don’t do it.
– Payday Loans: These short term loans have high interest rates and are never a good idea.
– Affects Credit Negatively: Your credit score in an important piece of information. If the debt is going to have a negative impact on your credit score, don’t do it.
Bookkeepers, Accountants & More in Summerlin, North LV, Henderson, Lone Mountain Village & Greater Las Vegas, Nevada
If you are looking to improve your overall financial situation, you want to make sure you’re making wise financial decisions. You can turn to Mark Dicus & Company to help you plan for the future. Call us today!