Good Debt vs. Bad Debt

By Stacy Willison, Mortgage Loan Officer

When looking at debt, you might think that all debt is bad. However, there are certain types of debt that can be good for you.

Good Debt

Good debt is debt that has the potential to increase in value and/or is an investment in your future. For example, mortgages and student loans are good debt. A home’s value usually appreciates over time and student loans are considered an investment in your future. You are not alone in thinking that student loans are bad; most people dislike them. However, getting a college degree gives you the potential to make more money over your lifetime.

Bad Debt

Bad debts are those that threaten your financial well-being. You may have already guessed that credit cards are considered bad debt and you are mostly correct. Getting into credit card debt is easy and can be detrimental to your future. Purchasing food, gas, clothing, or charging items to earn points without paying off the balance every month can lead to financial disaster. Another type of loan, such as a signature loan, used to finance a vacation is not the best idea. Although you may enjoy the time away, it can make your financial outlook seem bleak and overwhelming.

However, it’s important to keep in mind that credit reporting agencies and lenders like to see a variety of loan types on your report. Mortgages, auto loans, and credit cards are all helpful in building a strong credit history. The thing you need to remember is to use your credit wisely. Always make your payments on time and don’t get in over your head.

If you have questions about your debt and how it affects your journey to homeownership, contact our team for assistance. We will help you work towards your goals and keep your finances on track.