Bankruptcy Alternatives Blog

Not knowing the difference between Good Debt and Bad Debt can lead to Bankruptcy

Some people believe that all debt is bad; they believe you should never borrow money, because that way you are never indebted to anyone. Others believe that all debt is good; you are using other people’s money to invest, buy a house, or get the things you want now.

The truth is that some debt may be good, and other debt may be bad, and not knowing the difference can lead to personal bankruptcy.

In general, good debt is debt you get to purchase something that will go up in value. For example, buying a house may be good debt, because over the long term most houses increase in value. However, it is only good debt if you can afford to pay it back. If you borrow more than you can afford to make payments on each month, it is definetly bad debt.

A debt consolidation loan may be good debt, if you are borrowing at a low rate to repay higher interest rate debt. Obviously that type of debt is a good bankruptcy alternative.

However, even a credit card debt consolidation loan may be a bad idea if you cannot afford to make the payments.

Bad debt is usually debt you take on to buy items that will not go up in value. Borrowing money to take a vacation is almost never a good idea; it’s bad debt because once the vacation is over, you have nothing tangible to show for it.

If you constantly borrow money for items that decrease in value, your debt may increase to the point where personal bankruptcy becomes your only option, so consider your bankruptcy alternatives wisely, and only borrow if it’s good debt.