By John Patino
What comes to mind when you hear debt? College loans? Credit Card Payments Due? Mortgages? Losing Money?
There are two different types of debt one is good and one is bad. Let's talk about it. It is important to distinguish the differences between these two to help better understand what to avoid and utilize in different scenarios. First let's start with good debt, good debt is whenever it helps you add another zero to your net worth or if it has future value. In other words using money to make more money is good debt. Some examples that fall under the category of good debt is taking out a mortgage. Everyone at some point in their lives is going to settle down and find a place to call their home sweet home. Putting your money on a house is a good use of debt because it will not only put a roof over your head but it will also gain you money by home appreciation depending on the location and all the surrounding factors of the community. Next example of good debt is using student loans. Student loans can be beneficial because it allows you to get help for paying the education for the career you are trying to pursue. This is an example of a good use of debt because though it doesn’t provide you with value right away it will grow in the future and depending on the career path you choose it can be rewarding or take you there longer. Now that we got good debt out of the way let's move on to bad debt. What is bad debt? Bad debt is the exact opposite of good debt. While good debt is using money to make more money, bad debt is using money to lose more money. The first example for bad debt is credit cards. According to lexingtonlaw.com “In quarter four of 2018, America owed a total of $870 billion in credit card debt alone — a 5 percent increase from 2017. When other sources of revolving consumer credit are factored in, Americans owe a total of $1.057 trillion as of March of 2019. The outstanding revolving consumer credit debt is growing at a staggering rate and has surpassed revolving credit owed during the 2008 Great Recession”. Bottom line is that having credit card debt is bad because it will snowball into more and more liabilities and no returns for your money so make sure to pay the balance full when it is due. The second example for debt is automobile loans. Cars depreciate as soon as you drive them off the lot. Unless they are a rare ferrari, a limited exotic car, or a collectors piece most cars will lose their value overtime due to wear and tear. According to car fax.com “the value of a new vehicle can drop by more than 20 percent after the first 12 months of ownership. Then, for the next four years, you can expect your car to lose roughly 10 percent of its value annually”. In conclusion knowing the differences between the different types of debt can help you better be prepared for when you are in one of these situations and be financially sound.
Work Cited
“Car Depreciation: How Much Value Will a New Car Lose?” CARFAX, 5 Feb. 2019, www.carfax.com/blog/car-depreciation.
Issa, Erin El. “Why Is Credit Card Debt 'Bad' Debt?” NerdWallet, 15 June 2016, www.nerdwallet.com/blog/credit-cards/credit-card-debt-bad-debt/.
“Good Debt vs. Bad Debt - Types of Good and Bad Debts.” Debt.org, 2 Apr. 2019, www.debt.org/advice/good-vs-bad/.
this blog defiantly gave me more insight on debit in the real world after highschool. on how it works and what to avoid. how does bad debit affect your credit score though ? how does having bad debt put you in hole that you can never get out of ? theese are some questions i thought about as reading you post. made me think ahead on what really can help you in the longrun of your life with taking out loans if you dont have enough money. how can you recover from that.
ReplyDeleteIt's interesting the things that you don't know about until you've done the research because I've never realized that you could have a good debt or a bad debt. You did a good job with explaining the differences between what good and bad debt are. However, how is putting your money towards a house represent good debt? Anyone could put money towards a house, but also it's up to the bank to see if they're willing to do so or not. Will you need to also make sure that your credit score is good, or can you still buy a house whether or not you are in good or bad debt?
ReplyDeleteI always know that good and bad debit existed but I never though about how it could happen. I like how your post has a nice flow to it so that we clearly see your main points. One thing that surprised me was that as of march Americans owe $1.057 trillion.
ReplyDeleteI have always wanted to learn more about what's good debt vs bad debt, as this information really made me understand lots about it. The information, has answered lots of my questions that I had in the past, but now they're all answered from this blog. Had very great examples of good and bad debt.
ReplyDeleteI have known there is always concepts of good and bad debt but I never knew before this article what each one was. Good and bad debt isn't something that always comes to my mind when using my money or when other use money. While we did talk abo9ut credti debt in class, I never really realized how big of a problem it was until you stated that Americans owe $1.057 trillion. That's a huge amount of money! While you did state some examples of good and bad debt, what are other everyday examples for someone in high school? Also, does your debt in credit and automobile loans have an impact on your postive debt? Is there examples of debt that isn't good or bad but just in between?
ReplyDeleteFirst off, the introduction of this post really grabbed my attention! All the short questions were great. But, on the information side of it, I really enjoyed hearing the differences between good and bad debt. I always knew that debt was bad but I didn’t know it could be classified as “good” because of the way that it will make you money in the long run. When you were describing how when taking out a student loan and being in debt, you are down money, but then it will help you make money in the future by getting a loan and supporting yourself it helped me understand. I was doing some of my own research and debt.org states how the average US household owes $134,643 in debt. This could be a mix of good and bad debt though which I did not know before.
ReplyDeleteWhen ever I've heard the word debt I always though of it as a bad thing but it's interesting to know that not all debt it bad like when you talked about it adding another 0 like using money to make morn=e money. Nice Job!
ReplyDeleteI imagine most financially illiterate people think all debt is bad, this is obviously not the case,as long as someone with debt knows what they are doing, good or bad debt alike, they can pay off/make profit if they know how to take care of their money.THis stigma of "all debt is bad" might lead to some people not wanting to go to college in fear of student loan debt. This could hinder someone's future, by not getting a higher education.
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