The traditional perception about debts is that you must keep a distance from them. It is true that debts can turn your financial life into complete chaos. However, it depends on your intention behind their use.
There are mainly two categories of debts, i.e., good and bad debt. You must have perceived what they are meant to be from their names. Good debts will help you generate wealth and will stabilise your financial future.
On the flip side, bad debts can exhaust your income and limit your financial progress. However, with effective strategies, you can get a grip on them. Out of the many situations, you might face a situation where multiple payouts are pending and should be disbursed around the same time.
Since you cannot figure out a way out of this problem, it has worsened and has led to poor credit scores. Despite being in this vulnerable state, recovery is very much possible. Apply for debt consolidation loans with bad credit and no guarantor.
These loans will let you address multiple debts at the same time. Since they are prepared to emphasise more on the borrower’s affordability, poor credit is not going to be a problem. For this reason, you do not have to produce a guarantor as an assurance for the timely payment of loans.
Thus, even if you bump into a bad debt situation, you must try to overcome it. For this, you must first understand the difference between good and bad debts. This will help you do the needful to upgrade your financial situation.
Good or bad debts: What to know for financial well-being?
When navigating the financial realm, you will come across good and bad debts. Honestly, they are unavoidable in typical situations. The first one will boost your financial progress, while you must be more alert about the second one.
There will be situations when considering bad debts might be the only option. However, you will have to stay alert and take calculated steps. When you plan well, managing them should not be a great deal.
What are good debts?
In this case, you will borrow to achieve a long-term goal. It will be more like an investment that will make you gain at the end of the term. They can add value to your future by helping you grow some skills, acquire assets, etc.
Some of the typical examples of good debts are:
Business loans: You borrow money to launch or expand your business and for a better future.
Student loans: You are investing in education, and this can help enhance your earning potential.
Mortgages: Buying a home is a major financial goal for many of you. Many times, the value of your home might appreciate, and you can get a good price. Besides, once loans are paid back, you become the ultimate owner of the asset.
Why is good debt useful for your finances?
There are avenues that this debt can make your financial life blissful.
- You can improve your earning potential
- It helps you strengthen your credit when managed well
- It lets you get access to funds at affordable rates
- You can take some tax advantage as well
- It helps you build assets
What are bad debts?
Here also, you will borrow money, but to get items that depreciate in value over time. It does not help in improving the financial value. You might have to deal with high rates of interest. At the end, you will not gain anything, and your financial growth will suffer.
These are the common forms of bad debts that you must know.
Credit card debt: Your card is carrying high interest on the balance amount, i.e., carried from month to month. Then, repaying becomes very difficult.
Car loans: If you have borrowed money for a luxury car or a model that has depreciating value, it will turn into bad debt. Borrow wisely and within limits.
Loans for non-essential things: Getting loans is easier, and it can drive you to use them for purposes that are not essential. These could be for luxury items or lifestyle requirements.
How can you manage debts strategically?
There are times when you cannot stay away from debts. You must be prepared for these types of situations. This is because you need to bring yourself out of this bad debt situation.
You can pursue a few strategies to strike a balance.
Ø Determine the debt type
To be able to find a way out, you must understand whether it is good or bad debt. This will help you figure out the solution you will have to look for. Make it a point to invest money using a plan that helps you yield returns. This way, you will benefit as your financial situation will improve.
Ø Contribute emergency funds
The biggest advantage of having emergency funds is that you do not have to borrow money at high rates of interest. Any emergency that needs some cash infusion can be settled with the cash reserved for this purpose. Start building or contributing to it more right now for fast accumulation of funds.
Ø Devise a budget plan
Always have a budget plan in place to handle situations leading to good or bad debt. After all, you will have to repay more when it comes to getting debts. Thus, you must create a budget plan that suits your financial aspirations and potential.
Ø Seek expert advice
You might feel confused when stuck in a debt situation. If you are unable to understand what to do, it would be better for you to seek advice. Consult a financial advisor to understand how to proceed.
The bottom line
A loan is an example of debt, but you might be confused about which ones are good and which are bad. Taking out loans for bad credit online is a good idea. The primary reason is that you can get them from a direct lender.
Thus, you can expect some special features like flexible borrowing conditions. You can get external funds at affordable rates and better terms. Repaying them on time will not be painful.
Above all, by paying them back on time, you can downsize the burden of debts. At the same time, you can upgrade your credit scores. This is again another attempt to elevate your financial condition.
However, you must be careful about how you deal with these loans. Draw out that much loan amount which is practically possible for you to repay. Otherwise, this plan will backfire.
FAQs
How much good debt is considered healthy?
Debt is, after all, debt, and you should be careful about good debts as well. There is no problem until you are able to manage monthly payments. Your budget plan is working perfectly, and long-term financial goals are secure.
Is it a good idea to avoid debts altogether?
No, you should not always avoid debts. Then, you will miss their constructive effects. Borrow smart and in a planned manner so that your finances get the best benefits. Try to balance debt with income and financial aspirations.
Is it possible for me to turn bad debts into good?
You cannot straightaway convert bad debts into good debts. However, there are ways like refinancing and debt consolidation that give you an opportunity to minimise the burden of interest rates. Then, it will be easier for you to pay off debts without delaying further.
Jessica Rodz is the Senior Content Writer at Cashfacts. She has a long career in the field of content writing and editing. Jessica has the expertise in the UK lending marketplace where she has worked with 7 different lending organisations and acquired many responsibilities from preparing loan deals and writing blogs for their websites.
At Cashfacts, Jessica is managing a team of experienced loan experts and doing a major contribution in guiding the loan seekers via well-researched blogs. She has done graduation in Business (Finance) and now currently doing research papers on the UK financial sector.
