What is Good Debt?

 

The mantra these days is to avoid all kinds of debt as you want to live a debt free existence. However, this advice is not always what it is cracked up to be. As with any financial advice, it should be molded and shaped to the person that it is meant for. Financial advice is like shoes – it is not a one size fits all kind of proposal. But there are some factors that go into deciding how to handle your finances that really do ring true for everyone.
 
First of all, not all debt is bad. There are some debts that are considered good debts because of what they do. If you take out a loan in order to better yourself in some way, or to help your overall wealth, then it is a good kind of debt. For example, getting a mortgage for a home is usually a good kind of debt. Getting an auto loan for a car you cannot afford is usually not.
 
Let’s say you go to take out a car loan because you cannot get to work without a car. Well, this is not considered a bad debt unless you get more car than you can really pay for. If you end up with a debt that is more than you can financially afford the payments on, then you should probably not get the car – as this would make it a bad debt. In this situation, you should either get a car that you can comfortably afford the car loan payment on, or you should save up your money for the more expensive car so that you have a bigger down payment and thus a lower auto loan payment each month.

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