by Jinsen D

Created on: November 28, 2010   Last Updated: November 29, 2010

A good debt mostly means if you repay it, you can borrow more the next time; money to start a business for example. As you repay the money you borrowed for supplies etc, and as you make profit, you can borrow more money for more supplies the next time.  If you wish and keep earning more, you can establish very good debt i.e. with a future. Any debt with a positive expected outcome or at least possibly beneficial is considered good.

In the accounting and big business world a good debt would be an unearned revenue balance in the unearned revenues accounts, the service has been paid for but not delivered, like concert ticket sales, the event has to be delivered,until then it is considered a debt and a liability, for the big businesses and small business alike that would be considered a very good debt.

Now for individuals...

It is important to remember that a positive "good" debt can turn  negative in no time,for example credit card companies tell you only to use your credit card for emergencies,if you treat it that way it will just be a negative debt,since you always have unused credit,and owning a credit card actually doesn't improve your credit if you never use it.In fact as soon as you take on any form of loan, your credit rating is decreased until the debt is repaid,as you repay the debt the points are re-added to your score gradually.

All credit cards,specially secured credit cards(requires a down payment if you have bad credit) should be viewed as a stepping stone,if you keep using it and always repay,eventually your credit limit will be increased thus improving your credit. Credit cards with cash-back and a point system can even be a better alternative to the debit card,your debit card does not improve your credit rating.

I'm sure by now you are aware of what a good debt/liability would be,what about bad debts?

Any debt such as cable,gambling debts and everything else you don't really need, a cell phone debt could be good if you need it for your job and if it helps you earn money I suppose,anything else you owe for stuff that is not really going to benefit you in the long run is bad. Owing money for a TV is not exactly beneficial, the TV constantly loses value due to product amortization, unless you found a way for your TV to pay you or help you make money that is.

So you're smart you get it by now, good debt bad debt simple stuff.

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