Good Debt vs. Bad Debt
From a young age, we were taught that debt is something to be avoided at all costs. Just hearing the four-letter word can send us into a downward spiral. But let’s be realistic, debt is inevitable, especially in a world where few of us have the money on hand to cover every cost.
In fact, some financial experts say that some types of debt are even “good.”
So, What is “Good Debt”?
According to the Financial Consumer Agency of Canada, good debt is an investment that creates value or generates more wealth in the long run. Common examples of good debt include:
Mortgage debt is commonly referred to as one of the safest forms of debt–as long as you keep up with your monthly payments!
Your mortgage is a good form of debt because it helps you build equity in your home that you can use in the future. Real estate and property values also tend to appreciate in value over time and generally demonstrate low-interest rates.
Although student loans can be daunting for recent graduates, they are another great example of good debt. This is because they allow you to pursue post-secondary education without having to pay your entire tuition in full, which ultimately helps you increase your earning power and achieve your goals. In addition, these types of loans typically have much lower interest rates than other forms of debt.
What is “Bad Debt”?
Bad debt, on the other hand, is debt that you have incurred to purchase items that don’t increase in value over time or generate income. Common examples of bad debt include:
Credit card debt is considered bad because of its steep double-digit interest rates and low minimum monthly payments. On top of that, most of the items purchased using a credit card tend to depreciate in value over time. When it comes to credit card debt, it’s imperative that you pay your balance in full each month.
Payday loans are one of the worst forms of debt you can have. These small loans have short repayment terms and come with exorbitant borrowing fees. Depending on your province, you could pay between $15 and $25 for every $100 borrowed.
Furthermore, if you’re unable to make your payment, the payday lender may impose penalties all while your debt continues to accumulate interest. They may also decide to sell your loan to a collection agency, which further dampens your credit score.
Bad Debt Help is Available!
If you or someone you know is struggling with bad debt, contact Crawford, Smith & Swallow today. Our team of experienced Licensed Insolvency Trustees (LITs) can help to alleviate the burden by finding a solution that works for you. For more information, visit our website or contact us today for a free consultation.