Not all debt is created equal. Believe it or not, it’s good to have some debt and if managed properly this debt may help you build your credit score and your financial profile. Learn the difference between good debt and bad debt, and what your options are for managing both with Best Egg.
What is Good Debt
Debt is one of those words that often comes with a negative connotation, but not all debt is bad. Good debt is out there and can help you invest in your future by improving your net worth or increasing the value of an asset, like your home. If managed properly, good debt can also help you build credit.
Is it OK to Have Debt?
If the debt you have helps you build credit, is paying down high-interest rate credit cards or investing in your future, then yes, it’s OK to have this kind of debt. But too much debt of any kind can turn into bad debt if not managed properly — which leads us to the next question.
What is the Difference Between Good and Bad Debt?
The difference between good and bad debt boils down to what the debt provides you in the long-term. Whether it’s investing in your education, helping you pay down bad debt or used to buy an asset that appreciates in value — good debt financially benefits you in some way.
On the flip side, bad debt doesn’t help you financially. If you borrow money to pay for something that decreases in value the minute after you buy it, it’s bad debt. Bad debt also occurs when you have too much of it and it becomes difficult to manage — like a lot of high-interest rate credit card balances. This kind of debt can put a real strain on your wallet and lead to financial stress.
Why is Debt Good?
Debt is good when it helps you build credit, invest in your future and grow your net worth. If it’s managed responsibly and helps you achieve your personal and financial dreams — then that’s a good thing, right?
Examples of Good Debt
Find a few good examples here
A student loan is considered good debt because it invests in your future by preparing you for your career. Additionally, most student loans come with a lower interest rate in comparison to other loans and deferment options.
Taking out a mortgage on a home is usually considered good debt because it’s being used to purchase an asset that may increase in market value over time. Like student loans, home mortgages generally offer lower interest rates and that interest is tax deductible.
Home Equity Loans:
A home equity loan is usually considered a good debt to have because it may come with a low-interest rate. If the loan is used to make a home improvement — it can increase the value of your home which could financially benefit you when it comes time to sell.
Debt Consolidation Loans:
If you have a lot of high-interest rate credit cards and consolidate with a low-interest rate personal loan, you could potentially save money in the end — making this a good debt to have.
It pays to pay off credit card debt
If you have a lot of debt, don’t fret. There are financial solutions out there that may help ease the burden of having too much credit card debt.
One option is to consider a low-interest rate personal loan. Visit the Best Egg’s Debt Consolidation page to learn more.