Good vs. Bad Debts

There are good and bad debts.  That means there are good reasons why you should be borrowing money even if that means you have to pay for interest in the long run.  The fact that a debt can be good or bad depends on your current situation.  But there are a few basics that should be respected to stay out of a bad debt habit. 

Debt allows to do things people would otherwise not be able to.  Commonly, they are used to buy large assets that will bring benefits in the long-run.  That is why a debt can be called a good debt, if it brings you money in the long-run and if it holds its value.  A debt can become a risk if you don't evaluate your situation properly.  You have to consider that things may change in your life.  An intelligent investment can become a nightmare. 

Taking out student loans to pay for a college education is a perfect example of a good debt as well.  Student loans typically have a very low interest rate compared to some other types of debt.  Plus, a college education is more likely to help you earn higher revenue in the future.  A mortgage to buy a home is also considered a good debt.  They usually have lower interest rate plus that interest is tax deductible.  A mortgage is also based on a long-term period of time with relatively low monthly payments which allows you to invest the rest of your money elsewhere.  If you have the good timing, your house will probably raise in value, catching up with the interest rate.  And when you will sell the house, you should have made at least the amount you had to pay interest in plus-value on your home.