Wednesday, February 24, 2010

Good debt vs. Bad debt-2

And we should even be talking about the lines of credit like the home equity line of credit. Although they can be good in that sense that people use to renovate their homes, pay college bills, reduce their credit card debt but nowadays it is very hard to get your hands on one since the housing market is very volatile, you will be hard pressed to convince banks that the price of your house is high enough so that they can award you a line of credit.

Now we come to the so called bad debt. It used to be that credit card debt was bad debt because of the high interest rates. But as I said before, the classification of good debt and bad debt has totally changed on its head. Now people are using more and more of the credit card to pay for their daily essential items and for these people this credit card is the only line of credit that is keep them afloat. The car loan is also something not a bad debt after all since the people need their cars to drive to places.

All I am saying is that the notion that certain debt is good and certain debt is bad depends upon how you see them especially in this economy where the survival of the household finances is the real issue. Although the classification as I pointed before will remain the same for financial advisors, it is up to the individual to figure out their own good and bad debt.

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