Good debt and bad debt, what is the difference?

Have you wondering why you’re in debt?, maybe you say something like, “because I have no money”, and so there is a long list of answers, the common in them, that you don’t have enough to buy what you want or need. But ever thought if it is the same you debt to buy a car, that you debt to pay for your studies or your kids?, or the same debt taking a good vacation, you go into debt to buy a house?, the answer is NO! It’s not the same: why? There is a big difference between borrowings for investment in the long term (such as college or home) and ask for a loan for consumption in the short term (as are holidays and shopping, etc.).


When you invest in the long term, you know that this investment will give gains in certain period of time (if you study in college, you can get better job or if you buy a house, its value will increase over time), however, with one of consumption in the short term (like a vacation where you have only good memories, or a car loses value as soon as you get out of the agency). That’s the difference between a Good Debt and Bad Debt.

The good debt will generate income later and let you get back what you invested, they are usually long term. The bad debt will leave only pleasant moments. Not that we say, do not buy this or do not take vacations. What we say is that if it is something consumer tries to buy only what you can afford and not go into debt with them.

Think of getting into debt only with good investments, in the long term, those that increase your earning power. Also remember that a bad debt, with or without interest, decrease your ability to save for the time that you have.

The worst debts are those that come from late payment of the cards. These debts are extremely dangerous because if not controlled in time can grow very quickly. Before into debt for a new purchase, check your budget. Remember that delays in your payments, they can adversely affect your credit history, which will affect you so you can make goals that you had planned in the long term.