Good Debt vs. Bad Debt

If you’re thinking about bankruptcy, all debt might seem pretty bad to you right now. That’s understandable, especially when credit card balances, medical bills, and other types of consumer debt make it harder to afford your mortgage, student loans, and other necessary debts.

What Is Good Debt?

Believe it or not, not all debt is bad. “Good” debt is debt that can help you build equity, improve your credit score, and positively affect your financial standing in many other ways.

Examples of good debt include your mortgage or student loans because these things can, respectively, help you build wealth and increase your earning potential.

To stay ahead of good debt, however, you may need to deal with bad debt first.

What Is Bad Debt?

Bad debt is considered to be any investment you make in a depreciating asset. In other words, bad debt is money borrowed for something that can’t generate income or go up in value.

The thing is, most people have bad debt. Elective expenses you make on a credit card for consumable goods such as clothes, furniture, electronics, and other personal items are considered bad debt, but they really only become “bad” if you are unable to pay off your credit card on time.

When that happens, you start accruing interest on your bad debt. This starts a cycle that can push you even further into debt, threatening your ability to afford good debts such as your mortgage or student loans.

Bankruptcy Can Help You Deal with Bad Debt

If you’re facing a mountain of bad debt, you can discharge a lot (if not all) of it with Chapter 7 bankruptcy. You might have to give up some of the items you purchased that created your bad debt, but you can protect your home and car if you are current on your mortgage and/or auto loan payments.

For this reason, it’s usually better to choose to pay good debts like your mortgage over bad debts like your credit card balance. By remaining current on your mortgage, for example, you can worry a lot less about adding foreclosure to your financial concerns.

Contact Us for Bankruptcy Help

As soon as you realize you’re having trouble paying your credit card in full or are hit with a medical bill that you can’t afford, seek out help from an experienced lawyer and ask if bankruptcy would be right for you.

If you’re not sure who to turn to for assistance, consider reaching out to Buchalter & Pelphrey Attorneys At Law. Our lawyers can provide the legal guidance you need to make important decisions that can lead to debt relief.

Contact us online now to request a consultation.

Categories: 
Related Posts
  • When Should I Stop Using My Credit Card Before Bankruptcy? Read More
  • Transferring Property Before Filing for Bankruptcy Read More
  • Can I File for Bankruptcy More Than Once? Read More
/