What is a Debt?
Debt is an amount of money, goods, or services owed to pay or render by one party to another. It implies permission to the borrowing party to borrow money, goods, or services by accepting the condition to repay sometime later along with the interest.
Bonds, commercial papers and loans are common forms of debts.
Debts can be basically Good debts or Bad debts
What Type of Debt Is Considered Good?
It is difficult to make any thought of debt being good because debt is not magical, it needs to be paid each month regularly to stay away from over burden, a good debt can go bad when it is not managed properly. In spite of this, debt can be considered good:
- When you borrow money in order to fulfill your basic
requirement, that gives education, increase in wealth, dignity and
prosperity. Example : Educational loan, Car loan, etc.
- When you borrow money to purchase any valuable asset now and
same can be sold later at good profit. Example: House loans
- When you borrow money for very lower interest rate and if it
is affordable for you to pay later
- When you borrow money to make any investment that generates
income. Example : Rental income
Bad debts are even worse; let us see why!
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