Examples of Bad Debt

Examples of Bad Debt

Debt is a weird thing to think about as a concept. We are constantly bombarded with supposed fact that all debt is bad, when that is just not factual at all. Every person will encounter debt at some point in his or her life, and it is a matter of how you react to that situation as to whether it becomes a good or a bad debt. There are occasions in life where it is necessary to take out a short-term payday loan for example. If you take out a short-term loan with the wrong attitude and are unable to pay back under the agreed terms, it will become bad debt. If you however, understand your limitations, take out a loan and know you can afford to pay back the borrowed money in the set time, it demonstrates that you are a good borrower and your credit score can improve as a result. Good or bad debt is all about attitude, approach, balance, and understanding of your personal circumstances.

There are plenty of examples of both good and bad debt, so let’s take a look at bad debt and how you can avoid it. To begin with there is a simple premise that should help you understand what bad debt is at its very core. If you are creating debt for yourself that is created to allow for a certain lifestyle, or for purchases for clothes, for sport and entertainment, for music and concert tickets, buying new furniture or eating out at a restaurant regularly, but you cannot afford to do any of those things, that is bad debt.

For many people these types of lifestyle choices are such that they take out a credit card with a low interest rate for a set period of time. That’s fine to begin with and they continue to make the monthly repayments on time. Over time though, especially once the 0% interest free promotional period ends it is easy to see how it quickly becomes bad debt. If you continue to live in the same manner and to wrack up the same level of spending on a credit card, but now you have interest tacked on top of the borrowed amount each month, it is easy for good debt to turn bad and begin to spiral out of control.

The same can be said for any type of credit that you take out, from store cards, to personal loans, mortgages or payday loans. If you are working from a position where your wages do not cover your rent or mortgage, utility bills, groceries, and then stretch to pay back money you have borrowed, you are only ever likely to get into further trouble. If you are facing insurmountable debt and are feeling the strain there is plenty of help available, including debt management plans. Seek out advice and guidance in your local area. It is possible to choose good debt over bad debt, or to choose to live a debt free life completely. It is all about balance and making the correct choice for you at that specific time in your life.