Debt – The Good & The Bad

Debt seems to have a very complex concept. We all think that debt is something that one should get rid off as soon as possible at any cost. I know it seems strange to think of debt as good. So be smart with your money and get ready to differentiate between “Good Debt” & “Bad Debt”.

Good Debt : Boost your FICO score & Investments

It is absolute right to mention that Good Debt help you to boost your FICO score (credit rating). Debt can work to your advantage only if you take debt carefully. Like, you can use credit cards occasionally and then payoff as soon as possible. This will help you to build a good credit history. This will show that you are actually a responsible debtor. By making payments on time and keeping credit card balance low, you can improve your FICO score.

Debt can also be good in case of investments only and only if you plan it carefully. Now, a home is a good example of Good Debt. Other investments include stocks, bonds or mutual funds. But, always research the investments. If you find that the returns are highly solid, it's considered as “Good Debt”.

Bad Debt : An evil

You can get into the cluthes of Bad Debt when you purchase consumable goods or assets using high interest credit cards and then you are unable the pay the balance in full. It is always wise to be using budgeting and disciplined saving to generate enough money that you can always pay fully for the items that you purchase. For shopping purpose it is good to use debit card over credit cards. For example, credit accounts and car loans are considered as bad debt.