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Just Being Ernest

Content Creator at www.youtube.com/c/JustBeingErnest

16 May 2024

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Using debt to afford things that are useful Vs using debt to acquire things that are not useful

There are good debts and bad debts

Good debts are money borrowed to buy things that one needs or require like housing and running a business and owning a car for use to buy convenience/time

Bad debts are money borrowed to buy things that one does not need but want like expensive clothes, expensive bags, expensive furniture, expensive gadgets

What are your thoughts about good or bad debts and why is it people have bad debts?

Discussion (10)

What are your thoughts?

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I think people have the prejudice that having debts, either good or bad, is seen as unfavourable

The key distinction is between using debt to acquire things that are useful versus using debt to acquire things that are not essential or necessary.

"Good debts" are described as borrowing money to buy things that are needed or required, such as:

  • Housing

  • Running a business

  • Student loans

These are considered "good" debts because they are purchases that add utility and value in someone's life. The debt is being used to acquire something useful.

In contrast, "bad debts" are described as borrowing money to buy things that are not necessities, but rather luxuries or wants, such as:

  • Expensive clothes

  • Expensive furniture

  • Expensive gadgets

These are considered "bad" debts because the debt is being used to acquire things that are not essential or required. They may provide some enjoyment or utility, but they are not fundamental needs.

The key reason why people may take on "bad" debt is that they desire or want those non-essential items, even if they can't fully afford them without going into debt. The allure of those luxury purchases can lead people to make financial decisions that may not be in their best long-term interests.

However, there are things that may be considered good or bad debts, depending on how you value it. For example, taking a loan to get a car can be considered an good or bed debt, and ultimately depends on your individual circumstances.

  • If owning a car provides significant convenience and enhances the quality of life for you or your family, it can be viewed as an asset. This applies particularly to those who require frequent travel to remote areas or have specific mobility needs that public transportation might not fulfil adequately.

  • Car ownership in Singapore comes with substantial expenses, and one should also consider costs like maintenance, parking fees, and fuel. The financial burden of these ongoing expenses can outweigh the perceived benefits of owning a car, making it a liability.

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