Good Debt and Bad Debt: click to know Meaning

Hello Readers,

Bheema has rectified the mistakes taught by Ram and now he is doing wonders in his business. However, as Ram said Personal Finance cannot be learned at one time. The lesson comes to him in the form of Good debt and bad debt

Good debt and Bad debt

Bheema is running his business successfully and purchasing luxuries on the other hand. After several months of purchasing luxuries, he falls short of cash, for the next few weeks he doesn’t go to the shop where he used to purchase luxuries. However, unexpectedly he meets the sales agent of the shop who enquires him why he is not visiting the shop. Knowing the reason the sales agent pretending to be his caretaker makes him think that there is nothing called Good debt and bad debt. This encourages Bheema to choose the option of EMI for purchasing luxuries.

Bheema falls into the trap of the sales agent he uses the EMI to purchase everything he dreamed of, and just weeks later he runs out of cash to pay his EMI. However, his Business is going well but the EMI is more than his Business profits the one who convinced him to buy is in front of his home using words that should not be heard by ears. Bheema is frustrated, angry, sad, depressed, irritated etc. He is feeling all the emotions any human being feels except satisfaction, the luxuries did not satisfy him.

Moreover, now he has no time to think about satisfaction but to learn about Good debt and bad debt, unlike Ram coming to his aid he goes for Ram asking him for help. This of course comes with a cost because his house is surrounded by Bank staff and local money lenders. He gets the help of Judicial officials who in turn orders the police to give him security and leaves for Ram’s home.

Though his home is nearby he rarely goes it is his ego of knowing everything that prevents him. Ram is surprised the moment he sees him. However, his surprise has a lifeline for a mere few seconds because he sees Bheema’s face and remembers that he needs to learn his next lesson which is Good debt and Bad debt

Bheema has no words except his facial reaction, but Ram can understand. He says there are many types of debt but for now, let us know only two types of debt it is Good debt and Bad debt. Recently you have Purchased a Television, Tab, Table Tennis, Binacular, Speakers etc. though the earlier ones were fine. These items take money out of your pocket and give nothing in return. You went into debt to purchase these things so it comes under Bad debt.

On the Other hand, Good debt is what takes money from your pocket but pays back double or more times than what it took. Eg: for Gold, assume you Purchased 10 grams of gold for 20,000 rupees. During a period of economic collapse which leads to loss of currency value. However, Gold Prices will rise at the same time leaving you no worries about essentials.

Bheema doesn’t react and sits Quiet

Ram: I Hope you understand about Good debt and bad debt

Bheema (Does’nt reply)

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1. What is Good Debt?

Any Product that makes you spend a small amount of money but pays you back dual or more returns is a Good debt Eg: A building that is given for Rent

2. what is Bad debt?

Bad debt takes our money but does not pay anything, under the worst circumstances it may siphon off more money.
Eg: A luxury car takes your money and maintenance of it will eat your savings

3. What is the main lesson one needs to learn from the lesson of Good Debt and Bad Debt?

For Purchasing assets you can get into debt, however, you should not get into debt for purchasing liability
Eg: For Asset consider “Gold” and for liability consider “Luxury car”

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