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Bad Debt

Bad debt is debt that does not lead to any long-term financial benefits and can create financial burdens for the borrower.

What You Need To Know

Debt incurred from credit cards, payday loans, or other high-interest loans to finance discretionary expenses like vacations or luxury items can be considered bad debt. The interest rates on such debts are often significantly higher, and they do not contribute to building wealth or assets.

Borrowing to purchase items that quickly lose value, such as cars, electronics, or furniture, can result in bad debt, as the borrower may owe more on the loan than the item is worth due to interest charges. This can lead to financial stress, high-interest costs, and a cycle of debt that is challenging to break. It is essential to minimize bad debt and prioritize paying off high-interest debts to achieve better financial stability and freedom.