Different Types of Debt

There is bad debt and good debt. The focus is usually on bad debt as most people have a lot of debt that is unproductive and causes severe financial distress, however there is good debt and this debt should be encouraged as it is productive.

Bad debt is when that debt is not productive in building an asset for you and/or debt which is beyond your means to pay back.  Typically impulse buying using your credit card is a common example of bad debt. The types of purchases are usually clothing, meals, small household items and other purchases that have no lasting value.  Bad debt can also affect your credit report, particularly if you are not meeting repayment dates and there are records entered into your credit file. These records are kept for 7 years.

Good debt is when you are building an asset for the future. This asset can be in the form of being a practical requirement for living such as your home or you car.  The home being a better example as it will usually appreciate in normal market and a car will depreciate. However if the car is used for income then as an asset it is much more valuable.

Borrowing to invest in gold, shares and bonds are another example of building an asset base that should have a higher return than the debt.  As with all debt, you need to ensure that if you go into debt to build an asset base, do your research to make an education decision that the asset base will appreciate.

Tom has been writing for many years now. Not only does this author specialize in financial matters, you can also check out his latest web site at http://hjcmotorcyclehelmets.info/ which reviews and lists the best motorcycle helmets for motorcycle safety.

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