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Money Management – Good Debt Vs Bad Debt

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Debt may seem as a natural part of life these days but without proper money management you can fall into bad debt. Credit cards had made falling into debt as easy as swiping that plastic over the counter.  Like the speed of information exchanging on the internet, you may find yourself deep in a bad debt situation in the blink of an eye. Fortunately you have an option. You have the choice between a good and a bad debt. Of course as a rational person, one would choose the good over the bad. However it is not as simple as most people think; whatever situation you are in rests solely on how you use your money wisely. Money management is an ability all people have but most people ignore. Much like unintentionally veering away from a diet program, we veer away from our financial plan because of the temptations we fail to resist. Simply put, we lack the discipline to stick to our program. To fully appreciate the need of it, it’s important that we understand the two kinds of debt and their relationship to one another. By comparing and contrasting a bad debt from good debt we can avoid the bad, stick to the good and be on our way to a stable financial future.

Money Management: Bad Debt

Let’s hear the bad news first, bad debt. A bad debt is a debt that is an unpaid debt that you have defaulted on and therefore worthless to the creditor because they can no longer collect payments. It is usually a result of a person going into bankruptcy or where the additional cost of pursuing the debt is more than the amount the creditor could collect. Therefore you are a liability to yourself and to the companies you owe money to. Adding to the damage, is having to see your credit rating go into an all-time low. So how did you come to this situation in the first place? We cannot say specifically but generally it is in line with you not getting your priorities right and the common factor here is the inability to live within your means.

Money Management: Good Debt

What about the good debt? In a nutshell a good debt is synonymous with investment. You borrow money to earn more money. If you borrow to invest, and the investment has a profit, you can pay your debt through that profit. Now that’s not only good but that is smart money management.

So what should I do? Learn how you can manage your money more responsibly. Proper management of your finances covers many things but its primary concern is to protect your money and give you a stable financial future. How do we manage it? You can start by writing on a piece of paper a budget or a financial plan. You can also ask some assistance from loan companies and other financial service providers. All in all everything sums up on your skills on money management.