Good Debt Versus Bad Debt – What is the Difference?
Does It Matter for Living Debt Free?
Good debt versus bad debt. What is the difference and does it matter for living debt free?
On the surface, all debt may seem good at first. Debt allows us to enjoy the benefit of something today for which we don’t need to pay until tomorrow.
What could be better? That is why credit cards are so popular.
Digging a little deeper, however, we find that by putting off our payment until a later time, we are actually paying a higher price. The higher price consists of two things: paying interest and giving up a bit of our freedom.
What do I mean by giving up our freedom?
When we buy something on credit, we make a promise to give up some of our resources to the lender at a later date. We will need to repay the debt whether or not we can afford to at that time.
This limits our freedom because we can no longer do whatever we want with our money.
Debt Free Financial Advice - All Debt is Not Equal
Most experts who give debt free financial advice will agree that not all debt is created equal. The worst kind of debt is that which is used to purchase things that start to lose value right away. Most credit card purchases are in this category.
Not far behind are car loans, because the car loses value over the life of the loan.
Better kinds of debt include student loans and mortgages. An education financed by a student loan provides a person with higher earning potential.
A mortgage provides a home for many years and it has the potential to increase in value.
Another benefit for both student loans and mortgages is the fact that the interest on them can be tax deductible within certain limitations.
So, is there good debt versus bad debt? I would say that overall, all debt is bad, but some types are better than others.
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