The Truth About Good Debt vs. Bad Debt

Debt is either "good debt" or "bad debt." --or so we've been told. "Good" debt is that money owed for things that may assist in building wealth, such as student loans or mortgages. "Bad" debt would be things like credit cards. This is an oversimplification as the differences between "good" and "bad" debt can be better defined, thereby giving us a clearer picture of debt and how to tell what is helpful. 

Here's the rundown on debt: the good, the bad, and the ugly.

Student Loans

Student loans are often necessary, as it's often the only way college education is possible for many Americans. But not all degree programs are equal when considering the debt one acquires and the income potential from that particular degree. A good rule of thumb is not to borrow more than you expect to earn the first year on the job.

However, the guideline's success depends on yearly salary increases to keep up with your debt, thereby paying it off within the standard 10-year repayment window. Considering this premise, you may need to lower the loan amount if you start school during a shaky economy or an unstable job market. Such is the case now. 

The current economic and job market situation suggests being cautious with school loans as the lingering effects of the Covid-19 recession may be present for a few years. 

Mortgages

Mortgage debt is considered a safe form of good debt since payments contribute to increasing the property's equity. Even after the mess (and the lessons learned) with the Great Recession, where home prices dropped, and ARM loan payments adjusted upward, home loans remain one of the most accessible ways for millions of Americans to build their wealth.

Although property ownership is considered one of the safest investment options, it still requires a clear understanding of how much home you can afford and which loan option best suits your needs. 

Solid advice from a trusted mortgage professional as well as partnering with a knowledgeable real estate agent is crucial.

The Bottom Line on "Good vs. Bad" Debt

When it comes to purchasing property, the answer is clear: there is incredible potential to increase your personal wealth. Our question to you is, "what are you waiting for?" Use our online calculator to get an idea of how much you can afford and contact us today for fast personalized answers.