Good Debt vs Bad Debt

Most people are aware of the phrase "debt," but did you realise there is a difference between good and bad debt?

Contrary to popular belief, there is both good and bad debt. Most individuals are in debt at some point in their lives. We all dislike paying interest payments, but saving enough money for large expenditures, such as a house or a college degree, is not always feasible and in certain circumstances, it is not financially wise. Here are some key differences:

Good Debt : Good debt involves purchasing a home or other asset that will appreciate in value or help you earn more money. Other types of good debt include investing and beginning your own business, with the long-term objective of generating wealth and profit.

Bad Debt : Bad debt accumulates from purchases that do not contribute to wealth creation or give long-term value. Bad debt depletes your wealth. These debts frequently lack realistic repayment arrangements and would not pay for themselves in the long run (as a business or investment would).

You safeguard your future self by being aware of the nature and purpose of any debt you incur. The correct amount of good debt may improve your capacity to save for the future, develop wealth, and finance the things you want in life while avoiding bad debt.

“Using a loan wisely can actually be beneficial in many ways – the trick is to view the use of credit as a tool to invest in your future rather than a way to live a life of luxury in the short-term,”

Theunis Kruger, head of unsecured lending at Standard Bank

Read the full article: “Good debt vs bad debt: Do you know the difference?”

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