Before taking any loan, you need to know if it is a good debt or bad debt to you. Don’t you know how to distinguish the two debts?
How to know good bad debt?
Find out how debt can be good and bad debt, and learn how to manage your debt wisely.
What is Good Debt?
Studies show that 68% of Malaysians still owe most of their debt to record high living expenses, rent, and children’s education.
With the surge in increasing Malaysian household debt, Bank Negara
Malaysia has introduced a more stringent system to control this situation.
According to the AKPK, most Malaysians seeking financial help from them usually incur a large amount of credit card debt.
By definition, debt means that you borrow money from another person or a financial institution for some time where you repay the loan amount with interest.
For most of us, getting out of debt is a necessity because we often don’t have enough cash to buy basic stuff.
What makes debt good or bad when it does have an impact on your financial life whether it is positive or negative?
Good debt can help improve your financial status over a long or short period. Instead of borrowing it should be clearer and more detailed.
For example, taking out a loan to grow your business indirectly is in the category of good debt which helps increase your net profit.
Good debt can also be categorized as below:
- Increase and increase your net profit.
- Helps to raise your money
- Able to make loan repayments
- Low interest
Examples of Good Debt
The survey shows that Malaysia is ranked in the top five countries in higher education.
It clearly shows why Malaysians are indebted to their children’s education.
Of course, higher education is what drives parents or students to take out financial loans for their education.
David Bok, a former Harvard president, said, “If you think education is expensive, try to ignore it.”
By having high qualifications, it can help you get a better job and increase your chances of earning a decent income.
Education loans are an investment that is a kind of good debt.
The key principle is to make sure that what you get out of your investment is more than the interest or expense involved with you throughout the loan.
What Is a Bad Debt?
Bad debt is classified as a type of debt that has no financial value in your life. Besides, bad debt can also involve long-term money costs.
Other criteria for bad debt include:
- Buy depreciated items over time such as cars.
- Credit card debt is unpaid
- High-interest loans.
Credit Card Debt
Credit cards can be a great financial tool if used correctly.
However, it can turn into bad debt when it is misused by making a large purchase amount but only making a minimum monthly payment or worse paying it after the expected date.
This will result in high charges and interest without mentioning the bad risk on your credit record.
Debt Management Wisely
Contact your lender or bank immediately if you are having difficulty completing the repayment of a loan.
Opportunities for banks to negotiate are because they also want to reduce the chances of non-performing loans before it becomes more complicated.
Try to work with your bank.
Alternatively, you can also find a Credit Counseling and Management Agency (AKPK) set up by Bank Negara Malaysia.
Their services are free and they will offer financial advice and financial advice and help individuals with their debt problems through debt management programs.
Before getting a loan, first, compare the loan from the bank which helps to get the best interest rates. You can get away with it by using a free way to compare personal loans from duitanda.com to know good or bad debt.