Good Debt vs.
True or False? • You should always pay off your house as fast as possible to save interest expense. • The most important thing when financing a car is to make sure you can make the payments. • Smart people never borrow money for college expenses. • It’s OK to pay for a vacation with a credit card as long as you pay it off in a year. • People who are financially savvy have no debt and never lend money. • If you have to borrow money for a car, an 8% car loan is better than using an 8% home equity loan so you don’t have a lien on your house. If you thought the answer to any of these questions is “True,” this article may be helpful to you in sorting out the difference between “good” debt and “bad” debt. Some of us got the message as children that any debt at all was basically evil, maybe a necessary evil for a short time, but not something that nice people did. Other families were always in debt, and children expected that calls from bill collectors were a normal part of life.
When you look at your bills each month, you may feel overwhelmed by the amount of money that you re spending on debt. Sometimes debt might seem like a trap that you only want to fight your way out of, but not all debt is bad. When a lender looks at your credit report to see what kinds of accounts you have, they will look at some debts more favorably than others. If you re focusing on getting out of debt, you first need to understand which debts are considered bad and which are considered good. Good Debt Some of your debt might be considered an investment. You re probably thinking, How can anything as bad as debt be considered an investment! If you took on the debt to purchase something that will increase in value and can contribute to your overall financial health, then it s very possible that debt is a good one. For example, a home purchase can be considered to be a good debt.
PT Says: July 8th, 2008 at 6:46 am You and I are on the same page here, Lazy Man. I’m in love with 3% and below interest debt, on the right asset. 🙂 Rich Credit Debt Loan Says: July 8th, 2008 at 7:12 am I am on board… My entire blog is about this subject. F20 Says: July 8th, 2008 at 8:25 am I’m with you too. Debt is a tool. Much like a chain saw, it can be useful and safe when utilized correctly. However, in the wrong hands it can be dangerous. Llama Money Says: July 8th, 2008 at 10:41 am That question #3 is a huge one – if you “deserve” it, chances are you can’t “afford” it. Jim @ Cash Back Ideas Says: July 8th, 2008 at 7:37 pm Hallelujah – another PF blogger who understands that not all debt is bad. Nice post! Mrs. Micah Says: July 9th, 2008 at 8:25 am Indeed. I don’t have a problem with mortgages, especially if the family takes advantage of the time value of money for investing instead of paying down the difference. Or car loans.
