Bad Debt vs. Good Debt

Posted By: Dr. Frugal in Credit on 08/21/2007 at 10:51:02

A debt is debt, right· Nope. Ignore for a minute interest rates and focus simply on the quality of the debt and what it is exactly that you are buying.

A good debt might buy you a night class at a community college--a bad debt might be racked up on credit cards for casual expenses that provide no long-term value.

Good debt enhances your quality of life on a permanent level--or at least a long-term basis. In other words, it adds value to your life: a college education is worth millions of dollars in potential future income; a home of your own builds a sense of permanence and equity; a reasonable means of transportation adds functionality your life. All of these "good" debts serve a genuine need. The caveat, of course, is that you can afford to make the payments.

Bad debt finances activities that will likely make life more enjoyable, but which add nothing to its long-term value. That's not to suggest that you don't buy new clothes or hang out with friends; it's that you don't do it by going into debt.

Bad buy buys things that you consume, that lose value, or that go out of style. There is nothing wrong with buying clothes, dinners, beers, and all the other things that make life worth living. The problems when you finance those things with a 21% interest rate.

Comments

No comments yet. Go ahead, be the first.

Leave A Comment:

*Name: URL:

*Message:


*Enter letters to help stop spam: satrd

Sections

Frugality (70)
(1)
Budget (32)
Credit (30)
Currency (22)
Economics (86)
Loans (42)
Politics (18)
Saving (30)
Taxes (42)

Related:

Debt Collectors
Unforgivable Debts
When is an online transaction secure?
Identity Theft
I lost my credit card

Most Popular

Debix vs. Lifelock
Is Lifelock a scam?
Review: TurboTax
Need a Coupon for Essentials?
Free Turbo Tax 2016

Most Recent


Need a Coupon for Essentials?
Tips for Saving Money on Fuel
How to Choose the Best Bank
Saving for College
Verizon Promo Codes
Biggest Bankruptcy Ever

Feeds


RSS/XML Feed