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Is there both good and bad debt?

On Behalf of | Nov 2, 2021 | Uncategorized

Although debt comes with an obligation for repayment, not all debt is “bad.” A Michigan resident with a significant debt balance might be making many wise moves. People can’t pay cash for everything, so financing certain essential purchases could do much good. However, some individuals struggle with poor borrowing decisions that leave them with a mountain of bad debt.

Good debt vs. bad debt

Making a down payment on a car precedes taking out an automobile loan. Although the loan creates debt, the vehicle may allow the owner to go to work, paying for the car and covering many other expenses.

Similarly, a mortgage loan could set someone on the path toward home ownership. The home’s value might increase far beyond the original mortgage debt costs and tremendously boost the owner’s net worth.

However, someone could purchase an unaffordable car or house. The debt amassed from such overspending could put the person in a challenging financial position. The individual might end up with little savings and even higher debt balances due to unavoidable borrowing. Both cars and homes require insurance, and credit cards may be necessary to cover those premiums.

Navigating a tough debt situation

Credit card use could get someone into trouble. Using credit cards to purchase essential, affordable items isn’t always bad. However, consistently borrowing to pay for unnecessary purchases might ruin someone’s finances.

There might be ways to deal with problems derived from mortgage debt and other loans. Refinancing a home loan or consolidating credit card debt may help. Perhaps downsizing a personal budget and sticking to a credit repayment plan would alleviate the situation.

Individuals who get entirely overwhelmed with debt that they can’t pay back might explore their options for bankruptcy. For some people, bankruptcy may be the only way to get a fresh start.