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The idea of “good debt” may sound like an oxymoron to most people. After all, being in debt is a bad thing, isn’t it? It means you owe money to someone, which brings things like interest rates and minimum payments and other scary stuff along with it.
But contrary to popular belief, having some debt isn’t a horrible thing. As long as you’ve got it for the right reasons and you are careful and conscientious about paying it off properly, owing money to a lender isn’t the end of the world and can help you achieve some important things in life, making such loans usually basic good sense.
Examples of acquiring good debt would be by taking out a home loan or a college loan. Your student loan will allow you to get a good education that will, in turn, allow you to get a good job. That good job will theoretically help you pay the loan off, so it’s a safe sort of debt where the returns potentially outweigh the fact of owing money to begin with. Home loans are a similar safe bet, as you obviously need somewhere to live, and mortgage payments can often be lower than the monthly rent on a similar dwelling.
Of course, these good debts can easily turn into bad debts if you’re not careful. Before taking out a loan, investigate all of your options thoroughly to find the best interest rates available to you. Along with that, you should never, ever borrow more money than you can feasibly afford to pay back. If you take out a loan to buy a home, make sure that you plan to live there for a few years at least – otherwise, the transaction costs if you end up selling too soon may mean you lose money, and that’s never a good thing. By making regular, on-time payments on your student loans, many lenders will often knock a couple percentage points off of the amount owed, but failing to make those payments regularly will land you in obvious hot water.
Not all debt is bad debt. When you take a loan out for something that makes good sense – as opposed to putting 50 lattes on your Visa card a month – then the debt can work for you, rather than against you. As long as you are careful about choosing the best rates possible, and do not borrow more than you can afford to pay back, certain debts make good sense in the long term.
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