Living in the real world it often seems impossible to save as there are expenses such as rent, the mortgage, car payments, groceries, petrol, and so much more. And when month end comes it often feels like there’s nothing left to put away. And that’s part of the problem why most get into debt.
Debt generally refers to something owed by one party, the borrower or debtor, to a second party, the lender or creditor. The lender or creditor can be a bank, credit card company, payday loan provider, or an individual.
People get into credit card debt to pay with it money which they don’t have now to pay later, and most times those who aren’t financially disciplined use pay day loans to get by and paying one debt with another. And easily getting back into a debt trap
Debt is inevitable for some and these days most have some form of debt. However understanding the difference between good and bad consumer debt is one of the keys to financial well-being and developing good financial habits.
Good debt exists when you borrow money to finance assets that will appreciate in value in the long run, taking out a loan for investments such as education, homes and businesses. And this falls in line with having financial goals. Which in turn you’ll pay down debt during higher-earning periods
Consumer debt (bad debt) is used to fund consumption rather than investment. Borrowing money that will decrease in value for debts incurred on purchase of goods that are consumable and don’t appreciate such as clothing, cars and appliances. Impulsive shopping for the sake of it can lead to short lived gratification and bad debt. Always consider how necessary that item is before buying it.
Ultimately when it comes to consumer debt try differentiate between the things you want (bad debt) and the things you need (good debt) to avoid getting into or creating bad debt for yourself. Also having a budget can keep you on track and minimise consumer debt and buying things on sale won’t derail your budget.