Why Is Buying A Car Considered Bad Debt Everfi?

February 26, 2024

In general, debt is not bad for your credit score. However, it is important to understand the difference between good and bad debt. Good debt helps you achieve your financial goals while bad debt hinders your progress. Good debt is typically debt that may help increase your net worth or future income, such as a mortgage for a home or student loans for education. Bad debt is generally any debt that won’t achieve those outcomes, such as a car loan for a vehicle that depreciates in value the moment you drive it off the lot.

Using a credit card to purchase items that lose value, such as clothes and meals, is another example of bad debt. Credit cards also carry high interest rates, making it difficult to pay off the balance in a short time.

Why Is Buying A Car Considered Bad Debt Everfi

To avoid getting stuck with a bad debt, you should make wise choices about what to purchase and how you choose to finance it. For example, if you need a new television, it is likely more financially sound to borrow the money to buy one rather than spend cash and potentially incur high interest payments on a product that will decrease in value over time. Similarly, if your refrigerator breaks and you have food spoiling on the inside, it makes more sense to use a credit card than to wait for your bank to issue an emergency loan or a line of credit.

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