Quelles sont les bonnes et les mauvaises dettes?May 3, 2017

Which debts are good and which are bad?

Never before have Canadians been in as much debt as today. Debt is a normal part of life, but it is important to keep it under control and make sure you do not end up with more bad debt than good debt. What is the difference between the two? This guide will help you understand it.

What are the “good” debts?

By itself, debt is not necessarily good or bad. Credit is only a tool, and, like any tool, can be used well and poorly.

Generally speaking, a good debt is an investment in something that yields or will yield additional value over time. Debts that are considered “good” are mortgages for a home or land, investments, student loans, business starting loans, and any purchases that make a real positive impact on your work and your life.

What are the “bad” debts, then?

The bad debts are those that ultimately prevent us from improving our life or drain our finances over time. Credit cards, for example, are often sources of bad debt. The main reason for that is the interest rates, which can quickly increase the total amount that needs to be paid, further increasing the cost of credit. In addition, payments that exceed our abilities or that are not made on time can generate even higher interest rates and may result in penalties.

What constitutes good or bad debt can certainly vary from one situation to another. While investing in a property that will increase in value over time may be an excellent idea, that is not necessarily so in every case. If the monthly payments exceed our real abilities, this debt will soon become a financial burden.

Some habit-changing tips

A good way to prevent excessive debt from accumulating or to fix a negative situation is to take a look at consumption habits. Do you have to use your credit card often? What purchases do you make? How often do you make these purchases? Could the purchases made with a credit card be made with a debit card or cash instead?

If the purchases can only be made with the credit card, be sure to repay the entire amount by the deadline. This way, you will avoid paying unnecessary interest and preserve a good credit score.

In more specific cases, the best way to see where you could save some money in your budget would be to meet with the financial advisor of your choice. Do not hesitate to make an appointment with a professional when needed.

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