Differences Between Good Debt and Bad Debt
There are two distinct types of debt. Good debt and bad debt. The difference in these is what type of debt they are. Normal debts that are good would be a car loan, student loans or a mortgage. These debts show that you have established your credit and were able to obtain loans. They are also monthly expenses that you will pay towards a greater good. You will one day own your house or car. You will also one day have zero student loans. These debts continually increase your credit score as long as you pay them on time. In some cases, you can apply for a refinance on your loan and get a lower interest rate due to your good credit. Bad debt is debt that you accumulated and you are working towards a zero payment due for an entirely different reason. These debts would be mostly considered credit card debts. This occurs when you charge things that you do not have the money to pay for upfront. Credit cards are dangerous in the hands of those that do not know how to properly use them. It is always good to have a credit card so that you can purchase something in an emergency situation. If you know you will have the money before the credit card statement comes in but an unexpected and necessary purchase must be made, you are using the credit card wisely. If you are just buying things and acting as if you will not have to pay the credit card off, this is a bad debt. Credit cards can come with high interest rates and your $100 purchase can easily turn into $125 owed if you do not pay in full when the first bill comes due. Another unfortunate bad debt would be medical debt. This is something that may not have been avoidable and can be costly.
Negative Effects of Debt
When you have higher amounts of bad debt you may find yourself stressed out or depressed more often. The constant looming fear of being able to make enough money to pay for the debt can become a daily source of stress. You can also find yourself with more debt due to high interest rates on credit cards or loans. You may find yourself burning out from trying to work longer hours to cover the ever growing debt you have.
How To Eliminate Your Debt
The biggest key to eliminating debt is budgeting. You should budget for your expenses such as rent/mortgage, utility bills, car payments, insurance and extras that may include going out or shopping. You will want to budget for the holidays as well. Take into consideration the rising costs of the holiday season that include gifts, increased Ohio Power Company bills due to holiday lighting and having more people over to use more electricity. Aside from budgeting you can also save money and eliminate debt by acquiring a part-time job or a work from home part-time job. There are lots of things that you can do in your spare time that will earn extra money to help pay down any debt you may have. Virtual assistants, online freelance employment and web design are all fantastic ways to make money from home. You can also start dog walking, mowing lawns, shoveling snow, cleaning houses or babysitting as a side hustle for money. If you would rather skip trying to hire yourself out for odd jobs you could definitely look for a part-time job in addition to your full time career. This second income that you generate can be put directly towards eliminating any bad debt that you may have acquired.
Staying on budget, looking for money saving strategies around your home, establishing holiday budgets and acquiring a second income will help pay off any bad debt you may have.
