Yes, there is such a thing as good debt. There are only a few types of debt that fall into this category, but it's important to make the distinction. Some examples of good debt are:
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.
If you obtain a start up loan for a business venture this can be good debt. Again you are borrowing in order to give yourself earning potential. Of course you are always taking a chance when going into business for yourself, but often it is worth the risk and the necessary debt incurred.
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.
Another bad debt is borrowing money for personal use such as to purchase higher priced items or maybe to fund a much needed vacation. These are at times necessary but will not earn you money in the long run. Since they are not an investment this is not good debt.
Good debt does not mean that it can not be harmful to us if we are not careful. Taking on good debt should be thought out carefully. The lender should not be the only one crunching the numbers to see if the debt is within our ability to pay. We have to take personal responsibility for counting the cost and being sure we will be able to make the monthly payments.
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. - 15224
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.
If you obtain a start up loan for a business venture this can be good debt. Again you are borrowing in order to give yourself earning potential. Of course you are always taking a chance when going into business for yourself, but often it is worth the risk and the necessary debt incurred.
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.
Another bad debt is borrowing money for personal use such as to purchase higher priced items or maybe to fund a much needed vacation. These are at times necessary but will not earn you money in the long run. Since they are not an investment this is not good debt.
Good debt does not mean that it can not be harmful to us if we are not careful. Taking on good debt should be thought out carefully. The lender should not be the only one crunching the numbers to see if the debt is within our ability to pay. We have to take personal responsibility for counting the cost and being sure we will be able to make the monthly payments.
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. - 15224
About the Author:
Are you sick of buying financial guides that make great promises but just don't deliver on those promises? We offer objective reviews of many different products in the debt, credit, investing and real estate markets, to name a few. Visit http://www.financeproductevaluations.com to check out our latest reviews, such as our current top pick Debt Free In 3.
