Good debt, Bad debt – MMV299
Debt is a tool. But if you're going to use it, you need to make sure you're using the right tool for the job. In this video, I explain the key differences between good debt and bad debt.
Good debt vs Bad debt
Essentially, the differences are like this:
- Good debt is long term, bad debt is short term
- Good debt is low interest, bad debt is high interest
- Good debt is used to buy stuff which goes up in value, bad debt buys stuff which goes down in value
Examples of good debt:
How about a mortgage, used to buy a house? Property usually, but not always, goes up in value over the longer term and mortgage interest rates are low.
Or a student loan, which buys you an higher education and therefore enhances your employment and earning prospects (in theory at least).
Examples of bad debt:
Credit cards and store cards are bad debt, because their interest rate is high, and they need paying off quickly. Generally we use these to buy goods and services which are fleeting, like clothes, which we may tire of, or which may just wear out.
Worse still are payday loans, used by those in dire financial straits, often just to buy life's essentials, but which carry interest rates of four figures and must be paid off within 30 days.
Stick with the good debt
Needless to say, you should stick with good debt to further your financial cause, and stay well clear of the bad stuff. Good debt can accelerate your wealth building is used properly and carefully, whereas bad debt can lead to a spiral of financial mismanagement, bankruptcy or worse.
You know what to do.
BUT, if you're in some bad debt, I have some ideas to help you get out of it. See the Getting Started page, where there are some links to videos which will help you.