What is the difference between good debt and bad debt? And could you give me expample of each.?

Question

I just read somewhere where you can make money off your good debt. I just wanted examples of this.

Answer 1

What you are talking about is called "Piggybacking" and it's where you sell your good credit card trade lines to a company and they turn around and sell they to individuals so they can increase their credit scores. The company then paid you a certain amount for every account.

This was used for a long time by a company called instentcreditbuilder.com but has been stopped due to the mortgage industry lobbying the FTC to change the way credit scores are calculated.

Due to this FICO will change the way credit scores are calculated next month and authorized users will no longer get additional points for these accounts. It will be retroactive also so anyone who received points from this scam in the past will lose them when the credit bureaus update after the change.

Answer 2

I think being in debt is bad no matter what, but a lot of people do insist that a mortgage is an example of "good debt". The meaning of "good debt" is when the debt enables you to come out ahead even after you pay the interest. In theory a mortgage is like that because the home you buy should appreciate in value, and the entire increase in value belongs to you even though you don't own the house outright. That's one example of how you can make money from "good debt".
But remember that these days, there's no guarantee a home will go up in value.

Another more obscure example of how to make money is to accept a 0% balance transfer offer from a credit card issuer, then put that money in a high-yield savings account. You keep the interest from the savings account while paying back only the amount you borrowed at 0% on the credit card.

The other side of the coin is "bad debt" which means going into debt to buy something that goes DOWN in value, like a new car. Keep in mind that the term "bad debt" is relative - it doesn't mean all "bad debt" is a stupid idea. Sometimes you have to borrow to buy a car, and you don't have a choice.

Answer 3

There is no suchthing as GOOD debt. That is a term coined by the credit industry to make people think they can get rich by going into debt.

There's even an tv add out there that says you could be set for life using corporate credit instead of working to make money since there is no taxes on debt. These companies should be run out of town on a rail for things like this.



In the LOOSEST sense, the best example of "good debt" would be the mortgage on an income producing property such as a rental house or apartment building that brings in more than the interest you are paying out for the loan.

Bad debt would be buying food or gas for the car with a credit card you keep a ballance on.

If you pay the balance in full each month then there isn't anything too bad about doing this but if you carry a balance, you are just digging the debt hole deeper.


Try finding the Dave Ramsey radio show in your local area and if you can't find it there check out
www.daveramsey.com

There's lots of good information on the site and the radio show.

Answer 4

There is a difference. Some people consider a home loan good debt. The reason is simple. A house is an asset that (in theory) will increase in value over time. You are financing a house and have equity. Equity is wealth and the only way to get it is to buy a house. Some even though you may owe 100k on a mortgage, as the value of the home increases, you become more and more wealthy.

Bad debt is negative wealth. Credit cards debt is bad. You simply need to pay it off. Car debt can be considered bad debt since it is held against an asset that loses money rather than earns money.

Answer 5

Not entirely sure if this is what you are asking but there are things like "good debt" and "bad debt."

Generally, bad debt is high interest unsecured debt like a credit card. You are granted credit to purchase merchandise, but you are paying interest on that credit. It's not like you are getting money with which you can invest or you get a tax benefit or something. You are just paying high interest rates getting little in return.

Good debt is something like a mortgage. Mortgages are fixed rate loans that allow you to purchase a home. Plus, the interest on a mortgage is tax-deductible and it allows you to build equity. If you bought a house for $100,000 and put $15,000 down and took out an $85,000 mortgage, say you have $125,000 in debt (including interest on the mortgage). As your home increases in value, you are making money because the amount of debt you have is fixed. If 10 years from now your house was worth $150,000, then you effectively borrowed $125,000 to purchase something now worth $150,000. (Incidentally, this is why the housing crisis is threatening the economy because lately housing prices are not rising and debt levels are going up.)

In any case, you can see how with good debt you can make money if it is employed wisely.

Another poster said it is best to live debt free. That's not entirely true. It is definitely good to live credit card debt free but there are defiitely times when borrowing money is good.

Answer 6

All debt is considered to be bad, in the general sense of the word as it generally cost you money to pay it back, called interest. An example of good debt is when you obtain something, so to speak for nothing, such as utlility bills, cable TV, satatlite service bills, phone bills, and any net thirty day bills. All These are examples where you are billed in arrears for something you have already used. Net thirty means you have to pay it within thirty days, most utility bills are not longer net thirty as you are billed for what you used during the last thirty day cycle and now are receiving your bill which generally give you about 15 to 18 days to pay without a late charge. These items usually don't report on your credit report, unless you totally disrespect them for months and don't pay them, then they are reported as incollection, which will hurt your credit score. The only other example of a good debt, would be a mortgage loan, as basically it is interest free as all interest is generally tax deductable, and what you are paying in interest is generally recouped by paying less in income tax. It is not a one to one recouping, but the house is or should be, with proper maintenance improving in value. So this debt could actually make you money over time. Some people actually borrow money, obtaining debt, to buy antiques and old cars and the like, even stock and other business deals, as they are borrowing money to buy something that they know they can resale and make a profit.

In the business world, industries borrow all the time in order to meet their cash needs, and pay it back with other people's money, so their profit is basically made from having or carrying good debt. The investment houses, Standards & Poors, for example, rate business and industries based on their ability to repay, which without good debt would be impossible. One last thing, without borrowing and repaying, there would be no capitalism and growth within our socieities. So there is something that is known as "good debt", as "bad debt" is simply when you cannot repay it timely, and without deriving a substance of value from the use of it. The best example here is when you charge entertainment, eating out and vacations on a credit card and then don't pay it in full upon receipt of the bill. Credit cards should be used as a emergency fund and only used when absolutely necessary, for staples and necesssities during an emergency, and not just to have a good time. This is the purest example of a bad debt, especially when it is not paid timely, and ultimately ruins your credit.

Answer 7

There is no good debt. House debt is better than credit cards but its not good debt. The poster above forgets one thing. Risk. If you owe on a house then you dont own the house. The bank does. If something was to happen and you couldnt make your mortgage payment then you lose your house.

Answer 8

debt in itself is not good!

The best way 2 lead life is

Debt FREE

Answer 9

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