As we move through the different life stages, our money needs change – buying your first car, getting insurance, buying a house, paying the kids’ school fees, retirement plan, and the list goes on. And when these moments arrive and we need to buy something that costs more than what we have (especially in times of economic turmoil); off to the bank we go.
But before going to the bank or any other financial institution to ask for a loan, you should understand exactly what kind of debt you’re getting into. This might help you make a better decision about taking out the loan.
The two different types of debt are good and bad. Yes, there is such a thing as good debt. Below we’ll go into more detail about both.
This is positive debt, which in the long run will improve your financial wellbeing. What this means is that although you are taking out a loan now, the results of the ‘thing’ you bought will, over time, aid in your financial growth. For example, when you take out vehicle finance, you need to pay off your car and even though its value depreciates, you have the means to get to work and take the kids to school etc. A home loan is also an example of good debt as the value of your home tends to increase. And of course student loans are good debts. Student loans typically come with a low interest rate and by bettering your education you improve the chances of getting a raise or a better job.
Now, this is your negative everyday debt, which effects your long-term financial wellbeing negatively. These items lose their value quickly and you’ll probably still be paying them off long after they’ve been consumed. Bad debt includes all those luxury or non-essential items you buy on credit that you can’t afford. These would be TVs, fancy clothes (if you don’t need it), games and more. The general rule of thumb is: if you can’t afford it and you don’t need it, don’t buy it.
Managing your finances is not an easy task, which is why we’ve created an array of different financial services to assist you with your every need. All you have to do is call us on 084 11 438 48, and we’ll get you the all financial support you need through GetMore MONEY.
Information taken from Parent24.com.