What can be Defined as Good Debt

“Good debt “is debt a person amasses that they can afford to pay back or for the sake of investing. No debt is purely good though. If it puts a person in a bad financial position. What truly makes the difference between good debt and bad debt is the person managing it.Good debt can become bad and when a person lacks discipline and structure.

Student loan debt is not the most popular right now, but can considered “good debt” if an adult doesn’t take on more than they can afford. For example, lets say a student is in college and it cost him $25,000 a year. If they decide to take out a student loan for $10,000, that would be considered good debt. First of all, the cost doesn’t exceed the value. Second, a student will be able to afford this with monthly payments once he graduates. It is well within the realm of pay off.

The only time a student gets into trouble is when he decides to take on more than he can take. For example, lets say the same student attends college and it cost him $25,000 a year. If he takes out a student loan for $50,000, this will become bad debt. The amount is transcends the amount he needs. He will be setting himself up to fail before he even had the chance to start.

This is the problem with many young adults today. They take on more financially than they can afford to pay for. Another example of good debt are rent or phone expenses. This is a healthy way to build credit history. If a person is on time with their payments and shows responsibility, they will reap the benefits. In the future, lenders will want to take a risk on them because they show consistency. This is very valuable quality.

Accumulating debt to invest it is another form of good debt. However, it is good to invest wisely. For example, if a person decides to invest in a business or real estate with the help of a loan, that is a decent investment. The money is involved with something that will make their money work for them. An appreciating asset like real estate is one of the most secure investments around. It increases in value year after year and their are numerous tax advantages.

Debt is something to take on if one plans on using it to build wealth or further their life dreams. The key is managing it well and keeping track of how much money goes in and comes out. Once a person has this skill no one can take it away from them. In this case it would be considered ” good debt”.