The Important Difference Between Good and Bad Debt

Some people will tell you that all debt is bad. However, taking on credit is sometimes necessary, and will actually take you further in life. You will be able to get a promotion if you invest in your education, therefore, your return on investment will be huge. Buying a house with cash is also almost impossible for many people, and it is the only way. Below you will find out how to differentiate between good and bad debt, and make better financial decisions in the future.

Mortgages: The Necessary Bad Debt

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Unless you have very rich parents who are kind enough to buy you a house, or you win the lottery, you might need to take out a mortgage to get on the property ladder. A mortgage is the only option for most people. You will, however, need to work towards reducing the interest and term whenever you can, so you don’t end up paying back double or triple the purchase price. Mortgages are investments in your future, and help you build up your assets.

Student Loans: Investment In the Future Or Being Trapped?

The value of student loans depends on what you get back from your education. If you can land in a well paid job straight after graduating, and keep on progressing your career rapidly, you will not mind paying the money back every month. However, if you fail to secure a decent job, the debt will stick with you until you retire or it is written off. Before you take on student loans, make sure you will get the most benefits out of your education.

Car Hire Agreements

Car hire is similar to rent: you have little or no chance to build up assets. You will not own the car, unless you pay a price that is higher than the total price. Instead of car hire, you might want to think about applying for an unsecured loan, so once you have finished your term, you will own the car. You can use it as a trade in for a new vehicle, or keep it, instead of having to enter a new agreement and staying in debt without not owning anything.

Credit Cards: The Good and Bad Side

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Credit cards are dangerous for people who are not financially educated, or have no self control. You can build up a huge balance in no time, and get into all sorts of trouble within just months. Sometimes credit cards give you cashback offers and discounts, as well as extra security on booking holidays, therefore, if you use them wisely, you can benefit from having one.

Consolidation Loans: The Best Solution to Change Your Future

Consolidation loans are good, as they help you get out of bad debt, and reduce your monthly outgoings. Instead of paying a high interest rate on all your accounts, you will be able to budget better and have one repayment each month.

You need finance to get on in life. At the same time, you need to understand the difference between good and bad credit, so you can build your personal assets and get the most out of your financial agreements.

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