Almost everyone has debt to pay off. But not all debts are bad. In general, a debt which is a sort of investment in your future is a good debt. Here’s my list of good and bad debts.
- Mortgage. This is your home. This debt is a good one because we all have to pay a monthly fee to live on property. But with a mortgage, once it’s paid off your monthly payment goes away. A mortgage is also good debt because you can take out another loan if you have built up a lot of equity.
- Car loan. If you’re young an auto loan is a good way of building up your credit history before buying a house. A car is also a tool which allows you to go to work and earn more money.
- Student loan. A good education will result in a high paying job. Thus, a student loan will pay itself off in the long run. Student loans also have favorable rates and pay back terms.
- Credit cards. Most of the things you buy with a credit card won’t make you money. So you could buy a TV for $1,000 on credit and eventually end up paying $1,100 after you’re done paying the interest on it. Even when making the minimum payments, your overall debt can still increase.
- Personal loans. Money owed to a relative or a friend can result in ruined relationships if not paid back in time.
What kind of debts do you have and how have gotten rid of them?