What is a Good Debt compared to a Bad Debt

     What is generally considered good debt and what is considered bad debt. Most agree that in today's world unless you happen to have a lot of money, it is near impossible to live debt free. Most of us can only dream of not having to go into debt to afford a house or other things like education or a vehicle. But what about other debts, your refrigerator stops working so you go and purchase a fridge on your visa card etc… There is a gray area when it comes to debt but there are also some general rules that determine if a debt is considered bad or good.

     A good debt can be one that actually serves to better you in the future, such as a house payment or education payments. These are seen as investments. Their future value generally exceeds what you are paying for it now. Now this must also be within reason, getting too stuck with education or house payments is not health either. Also if you are using credit to purchase something that you can back up with money at the bank that is yours, then you are not really going into debt so to speak. Although a car can be a big expense and they only depreciate, it may also be necessary for your job so as long as your payments are within reach, this too could be considered a good debt. Also, perhaps you are borrowing money for a good business venture or are borrowing money for a low rate of which you can invest at a higher rate. These too could be good debts.

     Bad debts are things you have bought that you can't afford or don't need. Taking a holiday only using your credit cards to pay for it, than only paying the minimum or close to it on the balance is not good. Credit cards have the highest rates of interest to them and one should always try to pay off as much money on each credit card bill as soon as possible.

     Most agree that too many of us let debt go way overboard. This is unfortunate especially today with the cost of so many things seemingly rocketing skyward. Fuel, food and many other items are climbing far beyond what our earnings are in relation. While some things you need, other things you simply want, a desiring of the heart to which there seemingly is no end. Credit experts have come up with a number of 36%, this number is the amount you should not go over of your gross monthly income to pay off debt. If you can adhere to this number, than great but it seems a little strange to try to determine that as well. A more practical plan maybe needed and that is don't pay for what you can't afford now unless you know it is a 'good debt'.

Disclaimer: This site is not , nor should it be taken to be, legal, financial or other professional advice. It merely provides a generalized guidance and generalized information only. Consult a financial advisor or an attorney to discuss any legal or financial issues involved with credit and debt decisions.