PERSONAL FINANCE MANAGEMENT- PART 5 ‘’ IS DEBT GOOD OR BAD!?” Lesson 2 NEUTRAL DEBT Neutral debt, (not so commonly mentioned) refers to debt that can start out as good debt and turn out to be bad debt or that kind of debt that people would debate on as whether its good or bad, an example would be buying a car, some will say a car is a good debt because they say, it gives them a good status and can help them get good business and also help in their business operations, to some a car simply simplifies mobility from one place to another and to some its the status it brings. Another is getting an Interest free loan from work to buy household goods e.g Fridge, you will not use the fridge for business but for personal use, so whether buying it from a loan is getting a good debt or bad debt is debatable. WHEN DOES NEUTRAL BECOME BAD DEBT? Lets take the example of buying a car, unfortunately far too many people spend too much on cars, they tend to determine the suitability on purchase of a vehicle based on how much they earn and what their monthly payments will be. They never consider the cost of maintaining the car, they barely have enough left over for running the car e.g Insurance, Petrol and repairs, not to mention something left for saving, food, rent, other debt repayments etc. In short neutral debt becomes Bad Debt when its repayment is having an adverse impact on your daily financial expenditures, if you are left with far too less income to take you to the next income, then there is a problem, if you always have to borrow at to buy fuel then there is a problem, if you always struggle to buy basic vehicle replacement things like pads,oil, etc, then there might be a problem... to be continued...
Posted on: Mon, 16 Sep 2013 11:26:52 +0000
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