01
Aug
2010
Good Debt vs. Bad Debt

So, you decided that you want to buy a repossessed property on auction but are afraid of making debt? Luckily, there are two different types of debt when it comes to borrowing money – Good debt and bad debt. But what is the difference between the two?

“Good debt” has to do with the purchase of items which have an ongoing resale value, thus escalating in value. This can be considered an investment. A property, for example, can most often be sold for more than it was bought for. Furthermore, a repossessed property bought on auction can turn out to be an even bigger investment, since these properties are known to be sold for well-below market value. Repossessed properties can be viewed at www.myroof.co.za.

“Bad debt” occurs when you borrow money in order to buy luxurious items or make use of credit to cover your everyday expenses. When you want to buy a luxurious item you don’t really need, rather save the money and buy it cash than buying it on credit. Furthermore, you won’t be paying interest on it.

Here are three basic guidelines with respect to borrowing:

1. You should not have to borrow money in order to pay for everyday bills. If you are, you are spending more money than you are making.

2. Borrowing does make some sense if it is for an investment like buying a repossessed house on auction.

3. Do not borrow too much money; you still need to repay the debt. Make sure you can afford the payments.

There is a significant difference between the two types of debt. Now that you know the difference, you will be able to make good decisions regarding the types of debt you sign yourself in for.

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