When you talk of debt the first thing that comes to mind is a credit card bill waiting to be paid or a mortgage, you never associate debt as being something good for you. But there are instances when debt can actually be good for you. This can be explained by categorizing debt as good debt and bad debt.

Bad debt

This is where you purchase consumables you cannot actually afford to purchase on credit. Credit card debt is the most common form of bad debt. You pay for an item over a period of time and the item does not appreciate in value with failure to pay affecting your credit score.

Good debt

This is where debt can be considered as an investment. If the money borrowed is invested on something that will appreciate in value over time the debt has been used for a purpose to increase your financial situation. For example a loan you invest in a business which will double the investment in a few years’ time.

As you can see if utilized properly a debt can earn money for you whereas if used improperly it can cause you many problems.

Posted By: Financial Resources 101