Debt and credit are two unavoidable parts of your financial journey, especially if you plan on borrowing to make large purchases. This is why it's important to understand the differences between the two, as well as which kind of debt can best serve your needs.
Debt and credit are often used interchangeably, and while they are similar, they have distinct differences. Put simply, debt is something you accrue when you use credit. Meanwhile, credit is your ability to purchase something with the agreement to make payment at a later date. In short, when you use credit, you go into debt. Once you repay your credit, you're out of debt.
Unfortunately, not all debt is created equal.
Generally speaking, good debt involves credit used for things you need or that will ultimately benefit you down the line. For instance, debt taken on for university tuition or purchasing a home could be classified as good. On the other hand, bad debt could be classified as frivolous purchases made for things you don't truly need or that won't benefit you in the future. That huge flat-screen TV may look great on your wall, but the credit card debt you rack up to buy it may not be worth it.
Also keep in mind how debt can ultimately help your financial position, as paying off debt on a timely manner will boost your credit score.
Nearly everyone will go into debt at some point in their life; the key is managing your debt so it doesn't harm your financial stability or credit score. The experts at MOVO can advise you on ways to manage your financial obligations and make debt decisions that are suited to your specific economic situation.
Whether it's selecting credit with flexible terms and low interest rates, undergoing debt consolidation or simply focusing on saving instead of borrowing, there are many ways debt can be made to serve your financial strategy.