Most people will tell you that there are really no such thing as good debt. However, for some people loan is necessary to be able to afford big purchases like home and car. Although it is completely possible to get these with cash and be debt-free, it is not necessarily smart. One thing we all must consider when taking a loan is whether the debt you will incur is good or bad. It usually requires deeper analysis of specific circumstances to be able to determine whether or not a debt is good or bad. So before you apply for a personal loan, make sure to read this first.
The simplest way to describe a good debt is when it could give you more money in return. Profit is a hundred percent positive sign that your loan is good. Here are the things that are totally worth going into debt for:
- Education- Generally, the more knowledgeable the person is the greater their earning potential. Education could also give you more chances to score a better job. Better educated workers are more likely to be employed in good paying jobs and have an easier time finding opportunities when needed. To maximize your educational loan, you need to choose the degree program carefully. Make sure that there is enough career opportunities when you graduate.
- Business- You usually start your own business in the hopes to make money. Also, you do not have to rely on anyone for your paycheck your earning potential would also be endless. Although this would come in with a bigger risk you could decrease the chances of failing by venturing into something that are knowledgeable about and keep learning.
- Real Estate- There are a lot of ways to earn in real estate. If you are planning to reside in a house, you could maximize your stay there for decades and upgrade it once in a while so that it would appreciate its value when you sell it. That’s a potential profit already. You could also turn this into a small business by renting out your space.
While good debts has the potential to generate profit bad debt, in general, is when you took a loan for depreciating assets. In other words, if it will not go up in value or generate you an income you should not take a loan to have it. Here the most common bad debts you should be wary about:
- Cars- Vehicles could cost a lot of money particularly the brand new ones. While it is true that you need a car to get you from point a to point b in your everyday life, paying the interest is a waste of money. By the time you drive off the car shop, your car already values less than what you pay for it. It is always better to pay cash for a second hand car.
- Clothes- You could hear other people saying that clothes actually worth half of how much you are paying for it. You could always try shopping on thrift stores and still steal fashionable pieces.
If you are planning to apply for a personal loan or any other loan, you should run necessary assessments and think not just twice. We all should be responsible in the way we handle our finances.