The Difference Between Good Debt and Bad Debt

Experts in finance have different philosophies regarding debt; some advise to avoid it altogether, while others give tips on how to use credit to your advantage. When deciding to take on new debt at Simple Path Financial, consider the risks and benefits.

Good Debt

Good debt is money that you borrow to make more money. Business owners might know that investing in more vehicles or employees will boost the productivity of their company. Also, consider if the profit will be larger than the interest rate. A loan from Simple Path Financial should have an interest rate that is low enough where your earnings will offset the cost of the loan.

Bad Debt

Bad debt is for depreciating consumer products. In this case, one carries a loan and pays interest for something like a new couch or shoes. There can be exceptions to this, like if you have a job interview and don’t have the money for new clothes, or if you have an emergency and don’t have enough funds to cover it.

When taking on new debt, consider whether what you’re purchasing is an asset or a liability. If it is a liability, ask yourself if you need it. If it is an asset, calculate the difference between the interest you will pay, and the profit you expect to make.