Most people get into debt at some point in their lives. Whether it’s to buy a house, or a car, finance their own or their children’s education, or start a business. However, it’s important to know that not all obligations are the same. There are good debts and bad debts .

Debts can help you if you know how to differentiate them

There are good and bad debts, what makes them different lies in the use that will be given to them and the benefit or harm that the obligation generates at its end.

Good debt helps you achieve financial goals

Thus, a good debt is one that,  in the long term, benefits the person who acquires it. Generally, they tend to be smart and strategic investments, which can generate a benefit in the future. 

A good debt could be, for example, the purchase of a house

• With a mortgage, a person can obtain a property that will increase in value over time. By paying off the mortgage, a person is building up assets, which means that, once the debt is paid off, there will be long-term stability and a better financial situation.
• Another example of good debt could be taking out a student loan to finance a college education. Although it may take time to pay off, the education acquired can open job doors and increase earning opportunities in the long run. In this case, the debt is considered good because of the potential future benefits it brings with it.

On the other hand, a bad debt only involves expenses

On the other hand, a bad debt does not bring any benefit in the medium or long term, so it has no lasting value, or it can even harm the person in debt.

Bad debt could be irresponsible use of credit cards

• For example, to buy unnecessary products or services or use them as if they were an extension of our salary. It also happens if you don’t realize it and you have many small expenses that you pay with your card.
• If your credit card debts mount up and aren’t paid on time, interest can quickly accumulate, making it even more difficult to pay your obligations.
• In this case, debt could be considered bad because it does not generate any real benefit and can lead to financial problems in the long term. You may then be wondering how to get out of debt.
• Another bad debt could be taking out a loan to pay for a vacation or extravagant expense. While these experiences may be momentarily rewarding, they have no lasting value and if not paid off properly, they can leave a person in debt and in a difficult financial situation.

Take care of your personal financial health

The decision on the type of debt to be acquired should always be based on personal goals and objectives, as well as income, expenses and real payment possibilities. The situation should be carefully evaluated before acquiring debt and one should learn to make informed and conscious decisions to maintain good  personal financial health  in the long term.