Is there Good Debt?
Some people think that all debt is bad. But that is not the case. There is some debt that is actually good. Below are some instances where debt would be considered a good thing.
Obtaining a mortgage to purchase your home would be an instance where making a debt would be a good thing. Investing in a home is smart because your home will appreciate so even though you are taking on a debt you are in a position to earn money in the long run.
* Student loans - Getting a college education is a good investment as well. By earning a degree, you put yourself in a position to earn more money over your lifetime.
* Debt associated with starting a business - Starting your own business can be a risky proposition, but it's done with the intention of earning money. However, some of the assets you purchase will depreciate rather than appreciating. But for practical purposes, you can consider this a good debt.
More often we talk about debt that is not so good. Some examples of this are:
Financing a car ? unlike a home your car depreciates rapidly. That means you are not investing your money with the potential for a greater return in the long run. The money you spend is gone.
Almost everyone has and uses credit cards and they are convenient. However credit card debt is considered bad debt. Typically the purchases made on a credit card are things that will not earn you money over time. Credit card purchases are rarely an investment.
* Most personal loans - Personal loans are often taken out to finance purchases of things such as appliances, furniture, and vacations. These are often things we need, and a vacation can even help us become more productive, allowing us to potentially earn more. But none of these things appreciate in value, so they are considered bad debt.
Just because a debt is a so-called good debt, that doesn't mean it can't get us into trouble. It's important to keep our good debt at a manageable level. Lenders take our income into consideration when lending us money for this reason. But it's also crucial that we look at our individual situations and not borrow more than we can comfortably pay back.
Also, bad debt is not always something to be avoided. To have a reasonable amount of what is considered bad debt is fine. We just want to keep it at a moderate level and not allow it to get out of control. Just like good debt we want to be sure we can handle the payments and only take on bad debt when necessary.
Obtaining a mortgage to purchase your home would be an instance where making a debt would be a good thing. Investing in a home is smart because your home will appreciate so even though you are taking on a debt you are in a position to earn money in the long run.
* Student loans - Getting a college education is a good investment as well. By earning a degree, you put yourself in a position to earn more money over your lifetime.
* Debt associated with starting a business - Starting your own business can be a risky proposition, but it's done with the intention of earning money. However, some of the assets you purchase will depreciate rather than appreciating. But for practical purposes, you can consider this a good debt.
More often we talk about debt that is not so good. Some examples of this are:
Financing a car ? unlike a home your car depreciates rapidly. That means you are not investing your money with the potential for a greater return in the long run. The money you spend is gone.
Almost everyone has and uses credit cards and they are convenient. However credit card debt is considered bad debt. Typically the purchases made on a credit card are things that will not earn you money over time. Credit card purchases are rarely an investment.
* Most personal loans - Personal loans are often taken out to finance purchases of things such as appliances, furniture, and vacations. These are often things we need, and a vacation can even help us become more productive, allowing us to potentially earn more. But none of these things appreciate in value, so they are considered bad debt.
Just because a debt is a so-called good debt, that doesn't mean it can't get us into trouble. It's important to keep our good debt at a manageable level. Lenders take our income into consideration when lending us money for this reason. But it's also crucial that we look at our individual situations and not borrow more than we can comfortably pay back.
Also, bad debt is not always something to be avoided. To have a reasonable amount of what is considered bad debt is fine. We just want to keep it at a moderate level and not allow it to get out of control. Just like good debt we want to be sure we can handle the payments and only take on bad debt when necessary.
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posted by Debt Consolidation Loan at
11:25 PM
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