Good Debt vs. Bad Debt

It’s not just a war of words but a cause for action. Being good with your good debt can yield great results for you, and being bad with your bad debt can be disastrous. Well, what the heck does that mean? It’s simple. If your credit is important to you then it is vital that you understand the different types of debt and how they impact your credit score positively and negatively.

What is good debt? First of all, good debt is certainly any and all type of debt that you can afford to handle and accommodate by paying the required payments on time. If you’re only making the minimum payment on a credit card that’s fine; as long as you can afford to make the payments on time. The key word is afford. If you are carrying debt on your personal household ledger it’s crucial that you budget your personal finances accordingly to properly maintain the debt. Making your payments on time and carrying the debt for a long period of time in good standing are two critical components toward increasing your credit score. So, from a wide perspective good debt can be any debt that you carry that you can sustain and afford to maintain on a timely basis. What is bad debt?

Bad debt is debt that you were forced into acquiring because of familial pressure, peer pressure (keeping up with the Joneses’), business debt, etc., that you cannot continue to maintain. Bad debt is debt that is so overwhelming and un-affordable that it routinely causes you to miss payments, go delinquent, or underpay, because of carrying extra large balances, having high minimum payment requirements, or high interest. Bad debt is debt that can harm your overall credit score.

The most important thing any head-of-household can do is be honest about your financial predicament, and capability, articulate a financial plan to your family, and adhere to that plan through good times and bad.