In today’s world, a debt becomes bad when you are no more capable of repaying it on time. However, in reality not all the debts are bad in nature. Since the majority of us are into debt of multiple forms, we can divide these debts into good debt, a bad debt or to make it worse an ugly debt.
How can debt be a good debt?
As strange as it may sound, a good debt may make us live a life that we always wanted to. It helps us in having a better lifestyle. Many of us want to live in a big house and to have a big car, which is only possible by taking out a loan since not all of us can make cash payments. While it is important to maintain the affordability factor of these houses or cars, buying a commodity that does not suit your affordability may ultimately leave you with a bad debt.
Therefore, a good debt is the one that is taken and paid in time, without disrupting your payment schedule rather than the loan whose repayments rely on the uncertain credit alternatives.
How to deal with a bad debt?
A debt becomes a bad debt when you fail to make timely payments of it. The items bought with a bad debt may fall into the category of ‘wants’ than a necessity. While you may fail to afford the payments of this loan from the start, it is likely that you become incapable of paying a loan later on as well.
Since such debts hold a high rate of interest, therefore, if your financial situation changes to worse, this may leave you with a debt which you’re not able to pay currently. This may be a cause of losing a job unexpectedly or let’s assume an uncertain situation that disrupts your payment schedule badly and hence, changing your good debt into a bad one.
Is debt really bad for us?
In the case of a bad debt, the first thing that requires consideration is the proper planning and management of the money. This may also include the bills and finances; therefore, you must be aware of all of your bills and finances while keeping track of your expenditures.
Simply review how much you are spending, review the growing fixed and variable expenses and check your spending pattern on a weekly basis. While this will help you in assessing your financial standing, it might convert your unmanageable debt into a manageable one.
Therefore, understanding the value of budgeting, the power of setting financial goals and most importantly staying debt free are some of the basic practices that we should all adopt. By this way, we can easily cope with the situations like marital breakdowns, job loss or health issues that can drastically push a good debt over the edge of a bad one and ultimately into insolvency.
In bottom line
A debt is simply a way to make things happen. However, the secret to making it a good or a bad debt lies solely in the way of managing it with due diligence and prior planning to maintain an adequate financial standing throughout.