Saturday, March 04, 2006

Good debt and bad debt

Every one of us must have received calls on telephone for asking for a free credit card and unsecured personal loans. Here the question arises whether we should take loan on credit cards or opt for an unsecured personal loan. Many of the financial planners are recommending the reasonable use of credit cards. It should be used as a legitimate financial planning tool. Many people go on revolving balance on there credit cards months after month, most of them do not know if they have maintained a good track record of paying minimum payment for six months then they should be a eligible for a secured loan with interest of about 10%/year. This would be much cheaper than taken money from credit card.

For planning our financial needs we should have the knowledge of ‘good debt’ and ‘bad debt’. If we broadly speak good debt is used to create long term assets and for increasing income generation. In this category we can include the loans like education loan, loan taken to acquire or construct a home, or loan taken to setting up a trade infrastructure, or for using as working capital in business world. However in emergency medical or natural calamity, etc could be classified as good debit unless followed with good financial plans like insurance or money liquidation. A ‘good debt’ remains good only to time it is at fair rate and for reasonable terms and conditions.

In the category of “bad debts” come loan on credit card and unsecured loans. These loans are available at the tune of 14-30%/year in market. They could be opted for short term requirements or in emergencies. Long term dependence on bad debts is like a suicide and we should avoid these. For this we require a good financial planning and news of current market trends.

www.geocities.com/arvindkatoch1

No comments:

Post a Comment

Custom Search

Live Cricket Score

Download our free toolbar for Live scores all Cricket matches 2011, Indian Tour of England 2011, TimeTable/Schedule, Points Table, Live Cricket News, Live TV and many more. Download Now

LinkWithin

Related Posts with Thumbnails