Understanding Good, Bad, and Ugly Debt

A debt is considered good in two cases; when businesses borrow money to expand their business and when people take out a mortgage to buy a home. In both these examples, debt is a good thing because it is being used to expand assets.  Although the debtor owes money and has to repay it, the debtor receives an ongoing benefit either in the in the form of income stream or appreciation in home value. A debt is always good if the value of the benefit is equal to or greater than the amount to be repaid for debt.

If the ongoing debt repayments are more than the value of the benefits received then the debt is bad debt. For instance, a family had a great vacation to a sunny Caribbean resort and put the bill on their credit card. In this case, there is no benefit of having that debt; once the tan of the vacation has faded, there is little benefit remaining. This is what is termed as bad debt.

A good or a bad debt can turn to ugly if the payments are not made comfortably. Anybody who has gone through this situation understands ugly debt. Even though the loan was taken to buy a reasonably priced house, if you have been unable to make monthly mortgage payments, you have a serious problem.

Now, if you are in a situation of bad or ugly debt, then you seriously need to consider a debt management program by seeking help from an experienced credit counselling company in Canada. With DebtManagers, you can become debt free in much less time than you’d expect. If you want to restore your good credit, don’t hesitate, call our debt consultants.

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One Response to Understanding Good, Bad, and Ugly Debt

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