Good Debt

 

It may seem strange to think of debt in terms of good and bad. After all, isn┤t it all just bad? Well, not exactly. Like so many other things in life, whether debt is good or bad depends a great on how it is used. While you can use almost any debt to your advantage, provided you are judicious about what you go into debt for, there are some debts that are considered better than others.

There is some debt that is considered "good." In fact, in some cases debt is even considered an essential part of effective asset management. The best example of good debt is a home mortgage. This is because a home represents an investment. Your home is likely to appreciate in value, ultimately allowing you to get more out of your house than you put in. On top of that, in many cases the interest that you pay on your mortgage is actually tax deductible.

So there are definite advantages to getting into debt over a home. Here are a few other investments that can be considered good debt (1) Starting a business. The chance that you will make money, enabling to discharge your debt and build wealth is good, if you have a viable business plan. And most lenders won┤t front you the capital unless you do. (2) High return stocks or bonds. If you are likely to get a high return on certain stocks or bonds, taking on some debt so that you can make the investment might be a good idea. Be sure you understand the risks, however. You could lose it all if you are not careful. (3) Education. Loans for a good higher education are considered an investment, as they lead to skills that allow you to land a better-paying job, allowing you to pay off your loans and take advantage of your earning potential. Plus, federal student loans have lower interest rates, so you are not paying as much to use the money.

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