Financial Fitness 101 Tip #6: Good Debt! Bad Debt!

Owe no man anything, but to love one another, for he that loveth another hath fulfilled the law (Romans 13:8).

The rich ruleth over the poor, and the borrower is servant to the lender (Proverbs 27:7).

I was asked the following two questions:  What is debt and is there such a thing as good debt?  Let’s review the definition of debt.

Wikipedia defines debt as “an obligation that requires one party, the debtor, to pay money or other agreed upon value to another party, the creditor, with interest added to payment. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase.” 

In other words, debt is owing a creditor a predetermined amount of money that has interest attached to it, along with an agreed upon payment plan. With these types of debts are also penalties for late payments and for being in default for failure to re-pay the debt.

Personal loans and credit card debts are very risky! We have good intentions of repaying the debt, but let’s be real! Life happens!   Along comes unexpected financial demands such as health issues, family issues or car problems, which causes one to put these types of debt on the back burner to repay at a later date. When we fail to pay debt back as promised, we will receive,  “torture” calls daily from the creditor, and the loan(s) will go into default causing one to have negative hits on their credit report.

In my opinion, there is no such thing as good debt!  Whenever we borrow money whether for a home, car loan, vacation, luxury items, racked up credit card debt or personal loans we become a slave to the lender. 

Now if the question were asked, “are there good investments?”  My answer would be, “yes!” The purchase of a home can be a good investment, if one has properly prepared financially and emotionally for purchasing a home.  Homes rarely depreciate in value, whereas a car depreciates in value the minute you drive it off the car dealer’s lot.  Credit debt and personal loans are poor investments, they only add sorrow to the borrower and never add value because we purchase items that will no longer be in our possession and we end up paying for something we no longer have. With interest rates for these types of loans at 23% to 27% I would advise individuals to run, this is poor debt and not good wisdom short or long term!

I would advise, “don’t be a servant to the lender!” When thinking about accruing credit card debt or personal loans, read the scriptures above. My recommendation, if you need to use a credit card, only purchase what you can pay off at the time payment is due. For example, if you are going to charge $200 in credit card debt today, can you afford to pay the entire balance off when payment is due?  If not, don’t use the credit card, save for the purchase, then buy it at a later date.  Most times when we wait to purchase an item, we usually change our minds about it. With this type of rethinking, you will avoid emotional spending.

“Journey With The King”

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