Money for Life: Learn When Debt becomes Bad Debt

Is it possible to live debt-free? In this day and age when having debt is a way of life people can jump from one debt to another without realizing what the consequences are.

Debt is a scary word for many mainly because people often resorted to having bad debts. In my opinion, it would be acceptable to be scared if we have so much debts but I realized lately that debt is not so bad after all.

There are two kinds of debts and this was properly discussed by Aya Laraya, a money expert in the latest Money For Life talk last September 17 wherein the primary topic is debt. 

Now how do we define good debt from bad debt? Let me put it this way- a good debt is when you owe money to use for stuff that in a long run will have some value while a bad debt is owing money to buy stuff that depreciates or cannot increase in value. This is a valuable lesson I learned from the recent Sun Life Money For Life session. 

Mr. Aya Laraya for Sun Life Money for Life talks about debt

That are a gazillion reasons for people to owe money it could be for a new car, a lavish dinner out, a new house or for groceries. But have you thought about whether the things that you are indebted for will fall under good debt or bad debt?

What is good debt?
A good debt can be considered as an investment. This is where you owe money that has been put to good use and can potentially earn income as the time passes.

An educational loan and a business loan are just a few samples of good debt. These types of loan are being used with goals that could improve a person’s or business’ financial standing and increase income potential in the future. This is the type of debt that has financial leverage. 

What is bad debt?
Debts that drain your wealth are considered bad debts. It is really all common sense- bad debts are something you cannot afford to pay and have no capacity to “pay for themselves” in the near future.

A bad debt is often created when making impulsive purchases. Bad debts are used to buy items or for paying bills which have no potential to grow money. This is a debt that should not be considered in the first place since this will just incur more debt through interest for things that you could have pay in cash. Credit cards usage for shopping or dining is a great example of this.

Ask yourself these questions and with every ‘no’ answer it means it is a bad debt:

  • ·       Will this money I will borrow increases in time or improve my finance?
  • ·       Is this purchase really a good deal considering the interest it will incur?
  • ·       Are the monthly payment options easy to pay?
  • ·       Are the terms and conditions fair and will work for my benefit?

At the recent Money For Life session with Mr. Aya Laraya, I’ve learned that debts can be either good or bad. And knowing the differences is the vital key in planning your finances. 

If you want to have an opportunity for your money to grow, you could always check out Sun Life Financial Philippines. They offer sound financial planning tailored for you through their competent Sun Life advisors.