“Debt” is a word many of us have learned to fear. But having debt, to a certain degree, is not always a bad thing. There is such thing as good debt versus bad debt, and you may be in a position to put your mind at ease if your debt falls into the positive category.
It is said that your total debt should not exceed 36% of your total income. For many, that might be a hard percentage to stay within, but not if you aim for good debt. Good debt is the debt you build up through credit cards, loans, or other financial means, to pay for things you need but can not afford at the moment and that won’t wipe out your cash reserves. It is about having the means to pay off the debt amount over time without putting yourself in a hole.
Bad debt is when you head out with your credit card to buy things you want but don’t really need, like that two week hotel stay or a new surround sound system for the living room.
So what are some good examples of good debt? Investments in the future, for one. Paying for a home or covering tuition costs for college are all worthy reason to take out a loan or make monthly payments on a mortgage. Financing a car is another good debt move, but only if it is a means of transportation you definitely need.
It is important to sit back and think about what you are about to spend credit on or take a loan out for, and make sure you’ll have the means to pay it back without hurting yourself in the long run. As long as you are responsible, debt can be a good thing!