Most of the people think that credit
debt is always bad and it will bring financial troubles on them but this is not the case. There is a very critical difference between
good and bad credit debt.

In fact, good credit debt sometimes actually helps
your financial status as good debt is only good when you are paying it on time and are behaving like a good customer. There are several aspects to look into to find out what
determines good or bad credit debt.

Bad Credit Debt

Bad credit debt is the form of debt in which everything you need or don't need comes with a high interest rate for example a vacation on credit card will be very expensive because high interest will be charged from you.

Credit card bad debt is the worst form of the bad credit debt as it carries the highest amount of interest rate. Most people get into debt due to credit cards.

Bad credit debt is the debt accumulated on the items whose value doesn't increase over time. Since most of the services and goods decrease in value like the car's value is dpriciating every year, you might not even own any of those when you have finished paying for them.


Bad credit debt is that which increases the total cost of items, which you purchase, by two or three times their original value when over time interest charged is considered.

In a bad credit debt you are charged compounded interest. In this, the interest is not charged to the original principle but on the outstanding balance. The total payable, therefore, becomes interest on previous interest plus the principle amount left and so the combination bring each month a larger interest charge making your life a miserable one.

Good Debt

Good debt is the debt accumulated on goods or services whose value increases over time.

Good debt is in which you are charged simple interest unlike bad credit debt where you are charged compounded interest. This makes it easier to pay off the charges quickly.

Good debt includes the debt on something that is necessary for living for example a house. Reason for a home loan to be a good debt is that the value of most homes increases with the passage of time and mortgage also gives you an excellent reference.

School loans are
also a form of good debt as they help you find a job after school. The pay scale
increases with passage of time and most the school loans are charged simple
interests which make them easier to pay.

Business startup loans are also a form of good debt, provided you have expertise, experience, and proper preparation for the business you are starting.