Good Debt versus Bad Debt
Everyone has several problems in their lives. One problem is the need for an amount. To live a happy life, to do expenses like buying clothes, cars, investment and so on, we need the amount.
One can recollect this. An amount may come in different ways and goes out in several ways. It is for one and all to save money by avoiding unnecessary expenses.
Each individual in the world, you and me and have a goal in our lives. The achievement of goals happens with money. But at a different time, it will fail, and problems in life will take place.
Therefore, it is for all to know about good debt and bad debt. Time has come, and let us not delay any more. From this article, people must understand about good debt and bad debt.
What is debt?
Money, in other words, are called debt. A borrowed amount from a borrower and given to another person. For any individual or organization, the usage of debt acts as an important one. It is for any individuals and organizations who want to purchase items that are not affordable, and then one can use debt.
An agreement arrived between the lender and borrower, where the one who borrows has to repay the money monthly with a minimum fee or with an interest rate.
In every business, the usage of debit takes place commonly. One pays the borrowed amounts at a later stage or by instalments. Debt is off short term or long term and bonds. We frequently used usage of bonds in business industries.
Subsequently, every organization must avoid bankruptcy. This problem is because of over-indebtedness. Because of this, it cannot repay the debt. They must have a proper legal consultation to relieve the debts.
Debit, termed as a liability of companies. The reflection takes place in the income tax balance sheet. It is not only for companies to look in the income filling report; it is for all to look at our income filling report submitted to the income tax department. We consider this reference information.
Health problems arise because of debt. It leads to depression, headache, anxiety, no proper sleep, and not concentrating on any work. An example of debt is the mortgages, the car one uses.
There are other examples also like the clothes used in daily life, the consumables. These are examples, but there are many.
A cost referred to as the borrowed amount and classified into different types. A good debt, and the other is bad debt. It is to understand that not all debt is good debt or bad debt. It depends on only a time.
What is Good Debt?
Money borrowed, which helps to increase one income and grow wealth, are called Good Debt. The purpose is to increase the net worth and help to generate value. The value will go up from time to time. It helps to allow each of us, manage our financial position to handle in a better way. Despite whatever purchase, to improve wealth.
The lower the interest rate is much better and the need for investment for the future.
The examples of Good Debt are:
1. Mortgages of a property
Here, the usage of mortgage loans helps in buying properties. The value of the purchased property will double in a year, a long term or tripled and even more than the original price of the property.
2. Student loan
This loan is for the expenses for education for completing the degree. Once completion of the degree, the value of the student grows when anyone goes to a job.
3. Ownership of any business
It is for the start-up company or an existing company for any expansion, using the loan borrowed. The borrowed amount being referred, as capital income. With this in mind, profit in the company happens and acts helpful for securing savings in tax.
Stock market investing, an alternate way for individual value to grow. Growth, considered as a one-factor as long-term growth and short-term growth. The margin account has the necessary borrowed money from the broker to purchase equities and bonds.
This situation is helpful only for the experienced person in the stock market rather than for any inexperienced person, which causes a loss of profit. The quote Make money costs money is the best example for an experienced person for investing.
What is bad debt?
Bad debt, treated as a return of the borrowed money to the lender. The lender of the money is a banker, a single individual or any financial lending company. There is no growth of value, acts like a helpless one for increasing wealth.
In the meantime, the borrowed money may certain times are uncollected not recovered. The reflection appears in the income tax statement of any persons or companies.
An example of bad debt, for an unreceived amount: suppose x lends an amount of 10000 in rupees or any exchange value of the amount to y, who is a borrower.
The y, at a time, returned only 8000, and one does not give the pending amount 2000. in this case, the amount 2000 is uncollected. Due to this, it is bad debt and to be a write-off in the income statement.
The higher interest rates are a big problem, and prevention taking place for using the money. The goods purchased or any services have done are of no lasting value.
The examples of bad debt is:
• Car loan
Purchase of a car through a loan. The depreciation value tends down the car value. A helpless one for all.
• Credit cards
Many people use credit cards for purchasing anything, including cars. But because of higher interest, one must repay immediately it in a short time to avoid problems.
• Cash advances
Cash advances we get used for expenses or anything. It is not advisable to have cash advances because of the higher interest rate, like monthly or per day or hour.
• Consumer debt
The purchase of clothes, any appliances, any other things, or whatever consumer consumes has no value and are used or threw out.
To sum up, the good debts and bad debts described help to become more valuable for all. From here on, it is a must one must decide which debt to adopt for a better living to ease the pressure and use the money for all the needs.
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