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Debt And Its Nature Can Impact One’s Net Worth

Throughout one’s lifetime, one might face various kinds of problems and in this monetary crisis tops the list. Lack of money in the form of immediate cash can bring about standstill to one’s life.

Liquid money or cash is essential to one’s day to lives and without it brings a disturbance in one’s life. Life is unpredictable and having enough cash reserves to meet all of one’s requirements is very difficult.

People world over save lots of money for various purposes, especially in the form of emergency funds. But as per certain situations, even this amount may not be enough to fulfill a pertinent and urgent need.

A person might meet with an accident, and the doctor has advised more than three weeks of hospitalisation. Or your loved one needs a kidney or lever operation.

THE NEED FOR LOANS IS INEVITABLE 

Any financial crises can create chaos in one’s life, and to solve it is another game.

A person might as well require funds for higher studies or for purchasing a car or house, relevant and accessible these days. And with the attractive rates of interest offered, the idea does not seem to be bad at all.

Many online lenders offer various kinds of debt to all, including people with county court judgments and bad credit histories.

CCJ loan lenders are top-rated to service any funding need for those who have a low score in various debt payments as well as unable to offer any collateral.

Easy to apply for loans by online financiers cater to any need people have who have been refused funding assistance from the traditional financing and banking system.

UNDERSTANDING GOOD AND BAD DEBT IS VERY USEFUL 

Let’s understand the difference between good and bad debt. So the chances of a person in one’s lifetime to take any debt are high and so let’s have some thoughts about them.

There are two types of debt, good debt, and bad debt.

And people world over keep taking borrowing without understanding the fundamental difference between the two.

Any debt that does not add any value and which does not increase the net worth of a person indirectly is terrible. And, any debt which has an incremental impact of adding to the earnings of a person can be termed as good debt.

Once a debt has taken, the manner of its servicing is of immense importance.

Regular payments, along with interest, will only lead to the person gaining good scores in terms of creditworthiness.

Loans taken as

  • mortgage loans for house purchase,
  • student loans,
  • debt consolidation loans and
  • even small business loans

Add value to one’s earning potential and lifelong worth. And thus these types of loans can be categorised as good debts.

Additionally, good debts are also those loans that are easily payable every month by a person along with interest.

In contrast, bad debts are loans like credit cards, vehicle loans, payday loans and other kinds of personal loans to accelerate one’s purchasing aspirations.

The interest rates in these kinds of loans are often very high, and many people find it cumbersome to undertake their proper servicing.

Money borrowed to add to the purchasing power of a person has a detrimental impact on one’s pocket.

And these are considered are bad debts as the purpose for which these are taken are temporary without any future value addition.

Loans are taken for purchasing frivolous things by people, especially those who are shopaholics who are just a fad and this often leads to harmful debt accumulation.

The same is the case with credit cards taken by millennials.

BEWARE OF THE CREDIT CARD DEBT TRAP OF BAD DEBT

The youths of today have a high sense of consumerism, and for daily shopping needs, they fulfil this gap via access to credit cards.

But many people don’t realise that credit cards have in them the potential debt trap.

Timely payment of credit is very crucial; otherwise, the interest amount gets so accumulated that it reaches an extreme level.

This, in turn, leads people to miss lots of repayment dates and adversely impact their credit scores.

Credit cards are only useful when one pays off the whole amount borrowed at the very first instance of the repayment date given.

Otherwise, bad debt piling up gets started.

The intrinsic value of a loan as a payday loan or for credit cards is as much less as they add no value to one’s earning ability and life.

No manner do they impact for the betterment of one’s ability as the things purchased may not be of increasing value in terms of their resale possibilities.

Such bad debts only add to the leak of one’s finances in the form of various differing repayment schedules and mounting interest amounts.

GOOD DEBT IS A LEVERAGE FOR ADDING INTO ONE’S NET WORTH

In conclusion, one can state that good debt can be used as good leverage for adding any value in addition to one’s life.

This can be in the form of a commercial property or even to get rid of past loans with one simple monthly instalment.

While bad debts only muster in the creation of debt traps of incremental interest payments and unwanted expenses of consumerism in a person.

And thus people should think twice before resorting to taking any credit, comprehending the requirements for funds.

One’s needs fulfilment is different from demands fulfilment, and one must understand the goal for which lending is being undertaken for easy debt disbursal.

Ana Hoffman
Anna Hoffman is a part-time blogger who blog about Business Technology, Digital Marketing, Real Estate, Digital Currencies, and Educational topics.

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