Difference Between Good And Bad Debts By Nancy A Smithe At Isnare.com Ezine Articles

With this article people will learn the difference between good and bads debts, in order for them to try to avoid the bad ones.

Bad Debts

Considered the debts that have a low possibility to be repaid. There are two types of bad debts: business bad debt and non-business bad debt.

Business Bad Debts

As the name point out, a business bad debt comes from a business. It can be reduced only when you include it in the business income

Non-business Bad Debts

when we refer to this kind of debt, we mean it is more personal. For instance, a loan made to someone. Non-business debts are unworthy because they cannot be reduced unless someone takes extreme measures to collect the money, such as suing or filing complaints in court.

We understand that a debt becomes worthless when the possibility of getting paid is minimal. When a debtor files for bankruptcy, he makes loan to worthless.

Examples of Bad Debts

- Accumulated debt on things that with time do not increase in value

- the interest charges 2 or 3 times the original value of the product while time passes.

- Those debts that come with compound interests are always bad debt.

- Over a time period a bad debt can decrease the real value of any good

Examples of Good Debts

- A pretty good example on a good debt, is those debts that increase value of goods through time.

- When a debt charges a simple interest, it is considered a good debt because it can be controlled through a period of time

- Home loans, school loans and similar ones are considered good debts

- To acquire a home loan is considered a good debt because all real state goods increase value over time

- All school loans are considered good debts because they tend to help people acquiring work, while at the same time your income may increase the simple interest stays the same.

After all of this, people should feel more comfortable making decisions. In order to not accumulate bad debts and maintaining a healthy financial status should be an everyday task.

Bankruptcy will never be the answer because it is followed by harmful consequences, damaging finances starting from your credit report to your social status. People ignore this, but there are more than a few debts that cannot be taken care of by filing up for bankruptcy. We recommend people inform themselves before making any sudden decisions.

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