Good Debt vs. Bad Debt And The Top 5 Signs That You Need Debt Relief

From the failing mortgage industry the rising cost of college tuition, Americans suffer from debt for dozens of reasons. Some debt is “good” debt, and some falls into the “bad” debt category. If you accrue too much bad debt, you most likely need to seek debt relief quickly.

Settling your bad debt allows you to begin rebuilding your credit score. A better credit score will afford you opportunities such as lower interest rates on future loans and current credit cards.

What is good debt?

Good debt is usually defined as a debt that will produce some value in the future. For instance, taking out a student loan for a college education would be considered good debt, as long as you can afford the payments after you graduate. This is good debt because attaining a degree increases your worth in the business world, thus implying that you will make more money because of this debt.

Another example of good debt would be a mortgage. The value of your home increases with time, therefore you are building equity. All good debt basically comes down to the principle of return on investment, ROI. If your debt produces a high ROI, then it is generally considered good debt.

What is bad debt?

Bad debt occurs when you use high-interest credit cards to pay for disposable goods. These can be defined as items that lose value with time, while you are still paying on the principal charge and interest on your credit card. The debt you accrue with bad debt holds no value after you have charged it.

Some examples of bad debt include: meals, clothes and coffee. These are all considered bad debt because they instantly lose value after purchased. However, if you are paying your credit card bill in full every month on time, then charging these kinds of items is not detrimental and can even help build your credit score.

The catch is paying off a credit card bill in full every month, which requires budgeting, forward thinking and discipline.

Do You Need Debt Relief?

Take inventory of your bad debt. If your bad debt situation matches this list, consider a debt relief program.

• You are only making the minimum payment on your credit card bills.
• You cannot afford the minimum payment on your credit cards.
• You have more than five credit cards.
• You cannot make your mortgage payments each month
• You are behind or cannot afford your student loan payments or other debt obligations

If you can identify with the above points, then you need to consider a debt relief option. The first step to taking back control of your finances is getting help. Debt relief options such as debt consolidation and debt settlement are gaining in popularity, and have helped many pay-off their debt and live a debt free life.

Author Bio: Allison Roberts is a graduate of the University of North Texas Department of Journalism. She has experience in agency and in freelance public relations. Allison currently writes for Credit Solutions and she is completing an unfinished work of her late grandfather. For more articles by Allison on debt consolidation visit Credit Solutions.