Is There Any Such Thing As Good Debt?

Some people subscribe to the philosophy that all debt is bad; while others believe there are some distinctions between the various categories of debt that allow us to label some as "good" debt. It does make sense to label debts that result in a person's ability to build wealth as being good debts, because that is debt that allowed more money to be earned.

Good Debt

Good debts include any type of debt that generates value, including home mortgages, student loans or business loans. You borrow money to pay on your home, and the home generally will increase in value over time and be worth more than what you borrowed in order to get it. This becomes a good debt.

Other sources of debt that can be classified as good would include sources of credit that allow you to reduce your current debt, or reduce the amount of interest you are paying on your debt. If you have a credit card with a balance that charges 19.5% interest, and you pay it off with a loan with an 8% interest rate; the new loan should be considered a good debt. If you can get a loan from a tax-deductible source, that makes the debt even better. If you want to get a loan to consolidate your debt in this manner, then take a look at loans online from Alliance and Leicester for some of the best rates available in the UK. They are also a supplier of some of the top mortgage rates available.

Some people acquire debt in order to buy bonds, high-return stocks and a variety of other investments. This is typically also considered good debt.

If you must obtain debt, at least make an attempt to be sure the debt you have can be classified as "good". It's the bad sources of debt that cause individuals to lose control of their finances and get in over their heads - owing more money than they make on a regular basis.

Bad Debt

Bad debts are fairly easy to understand, and make up a large majority of many people's debt. Anything that doesn't have the potential to increase in value over time should be classified as a bad debt. Pretty much any time you purchase disposable items and durable goods on a credit card that you don't pay the balance off in full each month it's considered a bad debt. When you carry a balance from one month to the next on a credit card, you pay interest. The item you bought loses value while the amount you paid for it continues to increase - bad debt.