Good Debt vs. Bad Debt: Which Do You Have?

DEBT. While this one tiny word may cause your heart to flutter, there’s one important truth about debt that you need to know: It can actually be good for you.

Having the right debt and managing it responsibly can help you achieve big goals, build your credit and more! So, what separates good debt from bad? Here’s a breakdown:

GOOD DEBT

Mortgage

A home loan can boost your credit score, provided you make monthly payments on time and finance an amount that you can handle even if your financial situation changes.

Home Equity or HELOC

This type of loan can be used to make improvements to your home, finance other purchases at a lower interest rate than you might get with other loan types, pay off debt and more!

Low-Interest Debt

You’ll pay less in the long run and, when you carry a balance, your interest payments will be more manageable.

Car Loans

If you choose to finance your ride rather than paying cash, you’ll build credit by paying on-time — and you can always refinance if you find a better deal!

Student Loans

Some of the larger lenders, like Sallie Mae, offer flexible payment plans that can make it easier to repay your debt.

BAD DEBT

Excessive Student Loans

Rather than relying on student loans, consider getting a part-time job (or having your child do so if they’re the one in school). Also contact your credit union, employer or community organizations to ask about local scholarships and grants.

“Fast Cash” Title Loans

These short-term installment loans can be risky because you have to pay them back quickly and the business can take possession of your vehicle if you default.

High-Interest Credit Cards

High-interest cards can cost you a mint if you regularly carry a balance; plus, it’s easier to go over your max limit if you don’t notice the interest charges piling on.

While being completely debt-free might be your endgame, carrying “good” debt can actually help you reach other life goals. Just remember to consider which debts will help you in the long run and which ones might set you back.