There seems to be a lot of negative connotations when it comes to the word “debt.” And who can blame people? Most of the time debt is considered a bad thing or the person might face larger debt or bankruptcy. However, there are such things as good and bad debt. Knowing the differences can be crucial in your own debt consolidation.
Good debt includes a college education, buying a home, or starting a business. All of these have benefits and the opportunity to increase in value or bring a bigger income to the person. Then there is bad debt, which can include buying extremely expensive items, vacations, or using other debt to pay off new debt. For more information, there are five tips below you can use to better understand good and bad debt, and why having some debt isn’t so bad after all.
- Doubling your income potential
This point in particular is dedicated to student debt. A degree can more than double your current income, so the debt you’re accruing now can be easily paid off in the future.
- It’s part of business
Thinking of going into business? Then you’ll need to rack up some debt for start-up costs through a loan with a bank. This is another debt that is just considered a requirement in life if you want to start a business.
- Earning a mortgage
As mentioned earlier, buying a home is considered a good debt if you can get a great mortgage. Homes tend to go up in value, and once you pay off the house you have a valuable asset on your hands.
- Short-term investments
Another avenue of good debt comes from short-term investments, because they can pay out big and provide a bit of cash flow faster than long-term investing.
- Repairing your credit score
While it can take some time, paying off debts and having good debt can actually help repair or up your credit score in the long run. It can take time, but it will certainly be worth it.
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