What are differences between the good and bad debt?

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Agung
 
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What are differences between the good and bad debt?

Postby Agung » Wed Aug 20, 2008 1:58 am

What are differences between the good and bad debt?


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fffresh
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Postby fffresh » Sat Aug 23, 2008 6:36 pm

Good debt = under 30% of your credit limit you are only carrying for strategic purposes, like 0% or low interest balance transfers.

Bad debt = over 30% of your credit limit, plus you're paying high interest on it.

magyar1045
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Postby magyar1045 » Sat Aug 23, 2008 7:22 pm

Good debt is a promise to your loved one that you will always love him/her.
Bad debt is owing money

CarlSmith
 
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Postby CarlSmith » Sat Aug 23, 2008 11:51 pm

An example of good debt is deductible debt. This means that this debt is used for business or for investment or an asset.

Bad debt is used for consumption, like spending on cars, furniture, electronics and trips.

AnthonyBarone
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Postby AnthonyBarone » Sun Aug 24, 2008 9:36 pm

magyar1045 wrote:Good debt is a promise to your loved one that you will always love him/her.
Bad debt is owing money


Best answer I heard yet!

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fffresh
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Postby fffresh » Tue Aug 26, 2008 9:59 am

Do you guys think financial debt can be a good or bad thing?

Some people and companies think having debt at cheap rates is good because it allows them to re-invest the money into the company and grow faster. I agree with this I guess but I think for us, individuals, rarely can debt be a "good thing" for us.

I mentioned the under and over 30% of credit limit thing relating to credit scoring only and to help that. But besides that I don't think it's good for us owe a lot of money unless it is for very certain reasons and not as a gamble, hoping you'll get a windfall to pay it off later.

Rajeta
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Postby Rajeta » Tue Sep 09, 2008 7:30 pm

My general rule of thumb:
Good debt is taken for things that tend not to decrease in value. Home mortgages and business loans, for example. Debt to avoid are on things that decrease in value: car loans, furniture etc. I avoid carrying a credit card balance unless I am in a 0% APR period because the rates tend to be way too high.

010101
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Postby 010101 » Wed Sep 10, 2008 7:46 pm

so you don't think cars should be financed? not many people have 20 or 30 thousand laying around to pay in full. a lot of car promos have 0%, 2.9% apr and i dont see how someone can say they shouldn't finance a purchase at those rates.

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Postby Rajeta » Thu Sep 11, 2008 10:13 am

I was only mentioning the rule I generally follow, because I don't want to make payments on something while it is decreasing in value and then reach a point where the balance on it is higher than the car is worth.

True, most people that don't have that money lying around and will finance a car at least once or twice in their lives. If you don't have a choice then you don't have a choice. It's just something I would avoid if I can.
BTW I've never seen auto loans as low as 0 unless they take away some rebate they were offering you in the first place (and you end up paying more with the 0% loan). If you can really get a legit 2.9 or less rate, then it might not be a bad an idea.

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Mogul of Pineapples
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Postby Mogul of Pineapples » Fri Sep 12, 2008 4:14 am

Rajeta wrote:BTW I've never seen auto loans as low as 0 unless they take away some rebate they were offering you in the first place (and you end up paying more with the 0% loan).


Really? I've always seen them that were something like "0% APR or $1000 cashback." If it's a loan for 4 or 5 years, $1000 on a $25,000 car is cheap money. That's like paying 1% interest per year. In a case like this I would finance it because it's so cheap.

This was back in '05 and '06 when credit was still easy. Today I don't think this would make sense to do.
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