what is bad debt for business
Answers
Explanation:
Bad Debt
While good debt has the potential to increase a person's net worth, it's generally considered to be bad debt if you are borrowing money to purchase depreciating assets. In other words, if it won't go up in value or generate income, you shouldn't go into debt to buy it. Some particularly notable items related to bad debt include:
Cars. New cars, in particular, cost a lot of money. While you may need a vehicle to get yourself to work and to run the errands that make up everyday life, paying interest on a car purchase is simply a waste of money. By the time you leave the car lot, the vehicle already is worth less than it was when you bought it. Put your ego aside and pay cash for a used car, if you can afford to do so. If you can't, take out a loan to buy the least expensive reliable vehicle you can find and pay it off as quickly as you can. Buyers who insist on living beyond their means and financing a new car should look for a loan with little to no interest. While you'll still be spending a large amount of money on something that eventually depreciates until it is worthless, at least you won't be paying interest on it.
Clothes, consumables, and other goods and services. It's often said that clothes are worth less than half of what consumers pay to purchase them. If you look around a used clothing store, you'll see that "half" is being generous. As well, vacations, fast food, groceries, and gasoline are all items commonly bought with borrowed money. Every penny spent in interest on these items is money that could have been used more wisely elsewhere.