There is a tendency by many people to think of debt as automatically a negative thing. But this need not necessarily be the case. Borrowing is an essential part of life for many of us, and is a great help in getting us what we desire. We take a look at how not all debt is bad.
Not All Debt Is Bad – Good Debt
Good credit can take many different shapes. For example, having a mortgage, or any credit line, can help you boost your credit score by making frequent on-time payments. Future lenders will see your mortgage payments as evidence that you are a competent homeowner who knows how to handle owing money. Finally, you will have a property of your own!
And some borrowings are worthwhile to have because they make financial sense. Always consider whether having to make repayments on what you owe is beneficial to you when taking out a loan. If it is, and you are confident in your ability to repay it, there is little cause to be concerned about such loans. Borrowing is a common occurrence in any civilization.
Bad Debt
The above type of debt, on the other hand, is just using credit to purchase something that you could not otherwise afford. A individual with many credit cards that are at least halfway to their maximum credit limit, if not more, is an illustration of this. Lenders will be suspicious of this circumstance. One conclusion they may reach is that you lack financial management abilities. This is demonstrated by the usage of multiple credit cards on a regular basis. The second point is that you will eventually be unable to satisfy your financial responsibilities.
Considerations
That is the most important thing to remember in this situation. If you rack up interest charges that cost you money while also limiting your ability to pay off debt, you’re in bad debt. So it is not just about the fact that you have cash to pay back. It is more to do with whether you could afford to take on that extra credit, the consequences of doing so, and your planning for paying it off.
As Always – Borrow Responsibly
The easiest method to manage your credit is to reduce your overall debt and demonstrate that you are a responsible borrower. Maintain a balance of less than 30% of your maximum allowed and make all monthly payments on schedule. Previously you establish a positive track record, your credit score will improve, and what was once undesirable debt will become good debt because it is now manageable.
