Is It Always Bad To Have Debt?

Each month that you go over your bills, it might seem overwhelming when you consider the total amount that you spend on your debt.  Debt may even sometimes feel like a prison, where you don’t have the key.  However, debt is not always bad.  Anytime lenders view your credit history to determine which types of accounts you hold, they will consider some types of debt as better than other types of debt.  When you are attempting to become debt free, it is important to understand what type of debt is considered good debt and which type is considered to be bad debt.       

Types of Good Debt

Good debt comes from investments.  This may sound preposterous, yet it is most certainly true.  Anytime you use debt in order to finance an investment that will appreciate in value or that will contribute to financial health, you have taken on good debt. 

For example, most people detest student loans to finance their college education.  However, it is a proven fact that an individual with a college degree earns more money in their lifetime verses someone without a degree.  Therefore, the student loan is viewed as an investment into your future.  Likewise, a mortgage is also viewed as good debt since property typically appreciates over time. 

Types of Bad Debt

Now that you have an idea of what good debt consists of, there is also the matter of bad debt.  Bad debt is incurred anytime you use credit or finance something that is consumable.  Once the item is consumed, it no longer has any value.  Then you are still paying on something that is used up or gone.  That is why accruing bad debt leads to poor financial health.      

Since the items that are typically purchased with credit cards are consumable, credit card balances are often considered bad debt.  Anytime you use a credit card to buy everyday goods that you consume or which will depreciate the moment after you purchased them, you have incurred bad debt.   

That is exactly why car loans are bad debt.  It is common knowledge that a car depreciates the moment that it leaves the dealership.  Although transportation is a necessity, and you are paying on the loan while you are still driving the car, the car loan is still considered bad debt.

To maintain good financial health, it is very important so ensure that you do not incur a large amount of debt, good or bad.  There is always the possibility of becoming overwhelmed with too much debt, even of the good variety, to where it becomes difficult just to pay all of your bills each month.