Perspectives & Resources: Section 1

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Can debt be considered good or bad?

Transcript:

We are surrounded by the products of debt.  Since everyone has debt, does that make debt good?  No.  Actually, debt can be good or bad.  An example of good debt is our homes.  Traditionally home values go up over time.  So, you stand to profit when you take out a loan.  This helps define what good debt is. Good debt is anything you have to take a loan out for, and it goes up in value over time.  Another example is education loans.  You stand to profit and your return on investment will go up after you have the education.  Even if you though you had to take out a loan and incur some interest payments.

However, there are many more examples of bad debt.  For example, a car is considered bad debt.  As soon as you start driving a new car off the lot the car goes down in value and continues to go down faster than the loan amount.  This example helps define bad debt is.  Bad debt is anything you buy through a loan that goes down in value over time.  Another example is credit card purchases for gifts, clothing, and electronics.  All those products go down in value and when you purchase those products through credit or loan, no only are you paying interest payments for the product, but you are also absorbing the depreciation costs as well.

So debt can be considered good or bad.  Do you have more good debt or bad debt?

On a side conversation remember balance is everything.  Too much of a good thing can be bad.  Just like chocolate can be bad for your health, too much good debt can be bad.  For example, if you buy a large house that is too expensive for your budget, that would be considered bad debt.  So, take a strong look at your budget and evaluate how much good debt and bad debt you have for your family.

Resources:

BankRate.com - Good Debt and Bad Debt

YouTube Video on Good Debt and Bad Debt

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