In managing personal money, one cannot overlook or turn a blind eye to debt. Debt played a major role in circulating money giving life to the world economy. Debt is money owed to someone, a group of people or institution. It has many kinds of payment arrangements and conditions depending on the creditor, the one who lends money. However it boils down to the fact that once money has been borrowed, it should be paid or returned with interest. Almost every person has debt/s and most of the time paying debt became one important ways of living. In the debtor’s perspective, the one who owes money, debt is a helpless headache and no matter what happens, it should be faced to continue living. To rationalize money decisions and lessen regrets, one must identify what is good debt and bad debt.
Before anything else, a clear line should be drawn between needs and wants. Although people have their own classification of needs and wants and some may be stubborn on some things practicality should be established. Good debt represents needs and bad debt represents wants. Good debt may include but not limited to student loans, medical loans, home or mortgage loans, car loans, and small business loans. These kinds of loans are powered by needs and each of them reaps greater benefits and potential return of money against to the actual amount of debt incurred. Weighing their values will comfort ones tendency to guilt. Working towards needs is worth the effort and sacrifice.
On the other hand, bad debts may include but not limited to credit card debt, payday loans and personal loans for leisure such as vacation and jewelries. These kinds of loans are often discouraged by money experts as they are of high risk considering their high interest and tendency of incurring more than expected. Being into these types of debts are difficult to get rid of for they encourage more debt than what’s intended from the start. Against good debts, one can live off without owing these bad debts. Just an additional information but still related with the term, one may wonder why there’s only a bad debt term in accounting instead also of good debt. In business, in the creditor’s view, debt is primarily termed as bad debt as it is something being owed but cannot be collected. It is foreseen as a loss and treated as an expense.
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