These days students and debt go hand in hand, like sugar and spice. Come to think of it, millions of people are currently being snowed sunder by debt, and the ongoing credit crunch is making things a lot worse. One of the biggest problems is that credit is too easy to get, so people try to borrow and borrow their way out of trouble and it ends up escalating into an unmanageable situation. Many of you will look at the words ‘Good Debt’ in the post title and think, huh? Yes it does exist. But those of you who have heard about good debt and bad debt, do you actually know which debts are considered good and which are considered bad? Hopefully this post will go a long way in clearing a few of these issues up for you. As ever, don’t be afraid to contribute to this post via the comments section at the bottom.
Good Debt
Many people cannot possible perceive that any sort of debt can be good, but it can be, but it’s all about being smart with your money. In the simplest of terms, good debt is something which is an investment, therefore adding value to something in the short, mid or long term. Before these tough times, a safe bet was purchasing a cheap property, secure a mortgage and allow the property’s value to appreciate (as most did), the mortgage would be considered a good debt, because the value of the property was going up, now a property purchase isn’t such a safe bet.
If we move on and focus more on student related issues, a student loan is definitely a good debt because you are making an investment in yourself in order to improve you skills and make yourself more qualified and attractive to higher paying jobs, also you do not pay any of your student loan back until you earn at least 15k per year. You could even say that a student overdraft is a good debt, because it’s helping you pay your way through your studies, also it’s interest free whilst you are at college or University. So try not to feel overwhelmed when you think about the amount of student fees you owe.
Bad Debt
Bad debt is something which can very quickly land you in hot water and lead to more serious situations. Bad debt can be accumulated with purchasing non-investment type goods on credit, such as consumables and white goods, the person then is unable to pay the amount or only the interest payments, therefore debt accumulates and one has nothing of value to show for it. It is true that some good debt can turn into good debt also. With some credit card companies and store cards charging very high interest rates, it can become very easy to dig yourself a bigger hole every month until you are faced with an impossible task.
Like I said in the opening paragraph, it’s all about being smart with your money, making sure you identify which are good debts and which are bad debts, I may make it sound easy, but obviously it is missed by millions of people who are currently struggling to pay their bills and live day-by-day.
I hope this post has cleared up the facts about good debt and bad debt. Please remember to participate in this and other posts if you can and make sure to subscribe to the RSS via a reader or by email.
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May 15th, 2009 at 2:35 pm
Another example of good debt is one that provides a tax benefit.
May 16th, 2009 at 1:56 pm
I would take issue that a student loan is “good debt.” There are times when a loan might be the answer, but it should also be considered very carefully, and always a last option. Kids are too quick to borrow and find themselves at graduation with heavy debt…and these days, no job.
Borrow? Maybe…but think first.
May 16th, 2009 at 7:46 pm
@Bill I have come across very few young people who can pay their student fees and living expenses out of their own pockets. Also, you don’t start paying back your student loan until you start earning 15k per year, so it really isn’t that much of a big deal having no job and a student loan, I mean the interest rates are terribly low at the moment on student loans anyway. Thanks for your participation.
May 21st, 2009 at 2:38 am
Before applying for a loan, check the benefits that will be given to you. Interest rates must be considered and the payment period must be discussed to ensure that there will be no side rates included.
July 22nd, 2009 at 9:20 am
Thanks for sharing such great post, according to me people should pay off their bad debts as soon as possible, and build emergency fund, minimize the use of credit card, planning, etc. are the tips for reducing the bad debts.