3 Habits That Promote Bad Debt

Owing money to help generate income and increase overall net wealth in a well managed way is a good idea, we usually call these kind of debt, good debt. Buying a property, low interest financing for investments and loans for businesses are just a few examples. We have to bear in mind that good debt involve risk too and must be taken seriously.

Bad debts to me are debts incurred to buy into depreciating assets. For example, consumables, car, clothes etc. These are the kinds of debt we have to avoid. There are three habits that attracts bad debt. We should take note of them so that we can break them.

1) Spending without forethought(aka impulsive spending). The ease of cashless transactions, like pay wave now have contributed to this habit. A person who buys because of emotional reasons(hype etc) without thinking pragmatically is prone to have bad debts

2) Spending to impress. Trying to show off to your neighbours or relatives that you are on par or better than them financially and hence forcing yourself to take a loan to buy into items that you cannot handle. Items can range from holiday trips, car, furniture to even a house. 

3) Spending optimistically. Thinking that you can earn back the money quickly to pay off all your debts anyway. You have to be a pessimist in regards to pay increment and assume that it isn't guaranteed. Having an optimistic spending habit does not help you in anyway. Best to be aware of the possible bad scenarios that might happen, this will prevent you from getting into debts you cannot handle.

Try to think every purchase through. Do everything in moderation and always within your means. Hope this post can be of help to you.