As many of us have experienced, living debt-free is not realistic. And believe it or not, some debt is good to have – but do you know the difference between good and bad debt?
Let’s take a look at a few examples of common debt and what you need to know NOW:
Good debt should be looked at like an investment – it has the potential to grow in value and provide you with more opportunities. A couple of examples of good debt include:
- Student Loans – Generally, student loans have a low interest rate and graduating from college can provide more job opportunities and higher future income.
- Home Mortgage – Interest on your home mortgage and property tax payments are tax deductible. Additionally, you’re building equity, and you are putting money into a home you own.
Bad debt holds little or no value. Additionally, bad debt can carry a high interest rate. Examples of bad debt include:
- Credit Card – When you make partial payments on your credit card, each month, you are charged interest, so you’re losing money. And generally, purchases made on a credit card are disposable items that lose or provide no long-term value.
- Auto Debt – Many people need a car, but unfortunately, it’s not uncommon for car buyers to purchase more car than they need. And the reality is that cars quickly depreciate – in fact, as soon as you drive a car off a dealer’s lot, it loses value.
For many, debt is a necessary part of life. Just remember that not all debt is the same. There is good debt and bad debt, and knowing the difference is important. Good debt provides the potential to build opportunity and grow in value.