Budgeting For Dummies by Athena Valentine Lent

Author:Athena Valentine Lent [Lent, Athena Valentine]
Language: eng
Format: epub
ISBN: 9781119985167
Publisher: Wiley
Published: 2023-04-06T00:00:00+00:00

Looking at the Different Types of Debt

You acquire debt when you borrow a certain amount of money intending to pay it back. People can take on debt, but so can companies, corporations, and even countries. Heck, as of this writing, the United States is more than $31.2 trillion in the hole, according to U.S. Debt Clock.org.

Different types of debt affect your credit score in different ways, which you can read more about in Chapter 15. You want different types of debt paid off in full on your credit report so lenders can see that you’re a trustworthy applicant capable of paying off a loan. You do not want open or delinquent accounts all over the place. In the following sections, I review the different types of debt so you can get organized and pay these monsters off.

You often see people refer to debt as being “good” debt or “bad” debt. Good debt typically provides a return on your investment. Student loans are considered good debt because you’re using them to secure a college degree, which helps increase your earning potential. Another example of good debt is home loan because your home can appreciate in value over time, allowing you to sell for a profit. Bad debt is anything you’ve borrowed that doesn’t further your finances; I think of bad debt as anything that decreases your net worth over time, usually with depreciating assets. This type of debt includes auto loans (because cars lose their value) and credit cards.

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