Good Debt, Bad Debt: How Do You Know?
Not all debt is created equal. Believe it or not, there is such a thing as “good debt”.
Good debt is borrowing money for something that gives you value long-term, and maybe even gain value over time. Examples of good debt could be:
- a student loan.
- a computer if you use it to get a job or build your skills.
- a mortgage for an affordable home.
Bad debt is borrowing money for something that will lose value as soon as you buy it. Examples of bad debt could include non-essential items like:
- an expensive phone.
- a new vehicle.
Good Debt or Bad Debt?
Before you borrow money, ask yourself:
- What is the total cost of the item, including the interest I’m paying?
- Will I be better off financially in the future if I purchase this?
- Will this be a “good debt” or “bad debt”?
- Is this something I need or something I want?
If your answer is “bad debt”, consider ways other than taking a loan to get what you need or even want. You and your financial well-being are worth the extra effort!
If your answer is “good debt”, then begin learning about different types of loans that could be available to you – link to: “Should I Get a Loan or Buy This on Credit?”.