How bad can debt be for you?

Posted by Shreekant Rao on March 21st, 2017

In this modern day when credit cards and loans have become a part and parcel of our lives, debt is often a four-letter word that you tend to take in your stride. That is until the day arrives when you find that a lion share of your salary is going towards debt repayment and you have little or no money left to meet your monthly expenses.

This is when debt starts weighing on your mind and you feel the pangs of guilt, as you probably realize that you are saddled with a debt too many. It all starts with an “affordable” line of credit and you tell yourself that “little debt” could not possibly hurt and apply for a credit card that you believe is a low interest credit card. But once you set the ball rolling, you are stepping into a potential trap, unless you are well versed with finance and can exercise total control over the credit lines you are servicing.

Control over your credit lines can only come from the knowledge of making a distinction between good and bad debt and knowing to what extant debt can prove to be bad for you. Here are some points to consider while opting for debt:

The distinction between good and bad debt

The first step towards debt management knows what kind of debt you are opting for and whether it is good for you in the first place. To make this distinction- the main question you need to ask yourself is why are you considering taking a line of credit in the first place and whether you can really do without the Property Loan you are opting for?

In the Indian context secured loans such as home loans, vehicle loans, and student loans are considered good debt as they are directed towards an asset creation.  Unsecured credit such as easy personal loans and instant approval credit cards that contain a higher element of risk are considered bad debt. This however may be an oversimplification.  Small personal loans may be utilized during a medical emergency or even a big occasion in the family such as a wedding. Similarly, a secured credit card can be used judiciously to make household expenses and reap benefits through reward points or cash backs. Thus, it would be fair to say that good debt is anything that you are confident of repaying within the timeframe being stipulated. If you cannot see yourself repaying the debt in a stipulated time frame, it is probably bad for you.

[Source: https://www.creditsudhaar.com/blog/2016/12/28/how-bad-can-debt-be-for-you/]