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What Are Some Examples Of Bad Debt? | St. Louis Bankruptcy Lawyer

All debt is “bad,” so why do economists and financial advisors often refer to good types of debt and bad types of debt? The answer is that while some types of debt often lead to greater wealth in the long run, such as home loans, student loans, or business loans, other types of debt do not have a future payoff. Debts that lead to appreciating assets like homes are considered good debt, while high interest rate loans that don’t lead to appreciating assets are considered bad debts.

Here are just a few examples of bad debt:

• Credit card debt. Especially over the last few years, credit card rates have skyrocketed for even those who use their cards judiciously – and some card users are paying shocking interest rates as high as 25%. In most cases, what you buy with your credit card – clothes, entertainment, food, etc., does not go up in value and is not considered an asset. Therefore, most if not all credit card debt is bad debt.
• Vacation debt. If you go into debt in order to take a vacation, you are accruing bad debt. Although vacations can be relaxing and create lifelong memories, when they are done, you have nothing to show for it – and it could take years to pay off.
• Car debt. When you purchase a car, it immediately decreases in value – and yet you may be paying for the car, plus interest, for many years. While many people require cars to get to work and make money, they lose their value until the end of their lifespan. While car debt is certainly not the worst kind of debt, it is not considered good debt.

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