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Good Debt vs Bad Debt: How They Can Impact You?

Posted on by breezemaxweb

While debt is never ideal, there are certain types of debt that are considered good and will impact you in a positive way, while others are considered bad and will hurt your financial status significantly. 

Lenders, credit bureaus and financial experts all agree that mortgages are a good form of debt as long as you’re keeping up with the payments. Owning a home helps build equity that you can use in the future and properties increase in value over time, resulting in debt that is considered good as opposed to harmful. Home equity loans are also a part of the good debt category because they typically have a much lower interest rate than credit cards or payday loans, which come with astronomical interest rates. You still have to be careful, however, as borrowing money against your home must be done wisely. You will have to pay it all back along with the interest rate, so don’t treat it like an ATM and only use this option if you really need to and not simply because you can. 

Student loans are also generally not frowned upon because you’ve used the money towards a post-secondary education, which normally helps you earn a better and higher salary over time. Similar to mortgages, student loans will almost always have a lower interest rate than other forms of debt, classifying it as good debt. 

Credit cards, on the other hand, are definitely considered as bad debt because the items purchased with them will depreciate over time and the high interest rates that credit cards come with do not make it a good idea to accumulate debt. If you want your financial reputation to remain in good standing, you must pay off your credit card balance in full, on time, every month so that you don’t spiral into debt, which is something credit cards will easily do. 

Auto loans also fall into the bad debt category because while a car may be viewed as a necessity, the reality is that as soon as you drive it off the lot, it will start to lose value and will continue doing so as time goes on. Auto loans also come with very high interest rates, so this will in no way increase in value and only contribute to the bad debt status.

Whatever financial situation you happen to be in at the moment, Lending Experts can help! They can provide you with mortgage rates and offer debt consolidation as well as counselling. If you want assistance from a reputable mortgage broker, contact Lending Experts today. They provide services in the Burnaby, Surrey, Maple Ridge and Vancouver areas, so their expertise is accessible far and wide!

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Lending Expert
Suite 227- 5589 Byrne Road
Burnaby
British Columbia V5J 3J1
Phone: (604) 725-0675