Is there such thing as “Good Debt”? People spend years trying to get out of debt, so you might not believe in the idea of a good debt. How can it be, right? Actually – there is such thing as good debt and bad debt. Author, financial coach and TED Speaker, Tammy Lally defines good debt as “an investment of money that grows in value or generates long-term income”.
So let’s talk about good vs. bad debt:
Examples of Good Debt
Good debt is defined as debt you take on to help you generate income or increase your assets.
- Real Estate
Purchasing a home is the easiest form of investment in Real Estate. Purchasing a home will help you build equity, enjoy tax benefits, and gain control over your living space (goodbye noisy upstairs neighbor!)
- Student Loans
Education is an investment. Better educated workers are more likely to land a higher-paying job and have less difficulties when looking for new job opportunities. However,be mindful when taking on student loan debt. If there is little income involved in the degree you chose, student loans can quickly turn student debt into bad debt.
Examples of Bad Debts
Bad debt is defined as debt that you take on to purchase depreciating items
- High Interest Credit Card
The double-digit interest rates in credit cards , the minimum payment which will take years without paying the balance in full and the fact that it is used to purchase depreciating assets, makes credit cards the most expensive and “bad” debt.
- Payday Loans
The annual percentage rate of these loans is almost 400 percent! Payday loans are expensive and debt grows very fast at these rates. Payday loans are easy to get , sometimes too easy, but it can be very hard to payoff and you might end up paying 10 times the amount borrowed.
If you are working on reducing your debt in order to purchase a home – be sure to visit our website and browse our affordable homes and prime location communities at Roberts Communities.