Debt: good vs. bad

Posted by Eric Evans on 8:39 AM with 6 comments
Debt: Good vs. Bad
If there is one thing we know how to do well in this country, it is to spend more than we are bringing in.  Otherwise known as, creating debt.

Personal debt in this country is constantly on the rise.  In fact, it’s almost impossible to live debt –free.  In 2012 the average U.S. household with at least one credit card carries nearly $15,950 in credit card debt.

The word “debt” tends to have a negative connotation associated with it because it can be a very complex subject.  But one surprising fact that most Americans don’t realize is that not all of it is bad.  When used responsibly, debt can be of remarkable assistance obtaining wealth.

Therefore the secret to acquiring wealth and being good with your money is to distinguish between good debt and bad debt:


Good Debt

Good debt includes anything that helps you generate income and increase your net worth.  Though you pay a smaller amount of interest throughout the life of the loan, once the loan is paid off you have actually acquired something of real worth.

Bad Debt

Bad debt includes anything you will get penalized for with only having made your minimum monthly payment.  Credit cards are the most obvious example of this.  Credit lines extend your debt but only make you pay off a small amount of the limit provided, which leaves you with ridiculously interest charges.

Conclusion

There is still an argument to be made that no debt is “good” debt, but if used sensibly, debt can remain in control without depleting your whole bank account.  It’s just like the saying, “everything in moderation,” the same applies for debt.