Real Life Instances of Bad Debt
Let’s now think about some actual cases of bad debt. One good example is debt from credit cards. Let’s imagine you pay for a luxury item with a credit card. Interest will be applied if you cannot pay the balance by the due date.
These interest fees can accumulate over time and significantly increase the cost of your purchase. Another real-world example of bad debt is payday loans. These loans are typically taken out to cover urgent expenses like an unanticipated bill.
However, because of their high interest rates, borrowers may become stuck in a difficult-to-exit debt cycle. Auto loans may also qualify as lousy debt, particularly with a high-interest rate.
When you buy a car, you pay interest on a depreciating asset because it loses value when you drive it off the lot.
It’s crucial to remember that what qualifies as lousy debt can vary depending on your situation. Some view a vacation paid for by a personal loan as a bad debt because it doesn’t yield any profit.