Good Debts vs Bad Debts
Is there such a thing as a good debt? Actually there is. Of course it’s a good idea to be debt free wherever possible but there are times when a loan can help you improve your life. Credit can be a positive thing for you if you’re careful about it.
There are good debts and there are bad debts and there are a few gray areas as well. All debts can cause you financial problems if you run into trouble or don’t manage money properly but when you take on a new debt, careful consideration about whether it’s a good debt or bad debt can help you manage your money effectively:
Credit Cards
Credit cards are typically a bad debt because they cost you more than you gain. If you use a credit card to buy groceries, gas and for spending money, you’re definitely creating bad debts because it costs more money for absolutely everything you buy due to the interest and cardholder fees.
Mortgages
Because the home will probably go up in value, a mortgage is a good debt.
Auto Loans
Bad debt due to depreciation in monetary value. A new car depreciates the minute you drive off the lot but this may be a necessary type of debt because having a car to go to work brings you financial gain. Minimize the damage by getting a good deal on a car you can afford.
Student Loans
A student loan is buying you the education to improve yourself and your future finances so a student debt is a good loan as it’s an investment in your future.
Line of Credit
Credit lines can be good and bad depending on how you use them. Use it to renovate and increase the value in your house and that’s a good thing but use it to book a Caribbean cruise that you really can’t afford and it’s not such a great thing. Be careful not to pull too much equity out of your house with a line of credit otherwise your mortgage will become a bad debt!
What About Loan Consolidations?
Is a consolidation a good or bad debt? It can get you debt-free if you go about it the right way so be sure you research the ‘right’ loan and don’t let yourself fall into old habits with spending.
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