We all want to live without debt, we don’t want to be in any debt. But there are times when we have to get into debt, such as achieving a higher goal, for inventory purposes, for business purposes, wanting to start a business, etc. In real life, the debt and borrowing process continues. When we take out a loan, we all need to be aware of good loans and bad loans for our future well-being. Follow the 5 things below to make yourself aware of good debt and bad debt:
We can manage the economy with debt. Like consolidation, debt is considered good debt because you can pay off multiple debts by taking on consolidation debt. But if your business is in trouble and planning to take out a loan, it will rarely solve your problem. Therefore, before taking out a loan, you need to think about the purpose for which you are taking out the debt.
- Good debt increases net worth
Yes, good debt will increase your net worth. Like a student loan is good debt to help you get a new good job, a stock loan for business is good debt, a home renovation debt is good debt and adds value to your house, hiring additional staff is good debt and buying more supplies is good debt. But make sure you use it for a good purpose.
- Never take a loan for something that is deteriorating in value
Don’t borrow for things that will depreciate over time. A car loan is one real example of credit losses. The value of the car drops to 20% within a year of purchase. So don’t take out a loan that doesn’t lead to making more money and that is likely to get worse over time.
- Do not provide the service for free
If you have a business and offer products and services, don’t understand yourself as a lender. Do not produce a product or provide a service without payment. If you do, you will lend money to them. Unpaid debt is considered bad debt. According to industry statistics, the chance of non-payment is 27% if the invoice is not paid within 90 days. Keep in touch with customers and make aware of customers with bad intentions not to pay.
- Avoid taking on high interest debt
Debts with a higher interest rate are considered credit losses. Do not take high interest loans. If you have a bad need to take out a loan, do some research on finance companies that offer loans at a lower interest rate. Don’t get stuck in just one company, do your research before taking out a loan from anywhere. Very importantly, check your credit information in a timely manner. Avoid delays in debt as it will affect your credit history and you may not be able to borrow in the future.
As I have discussed, there are five points that clearly describe what is good debt and bad debt. Hopefully it will make you decide which loan to take.
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