Debt can be defined as an amount of money borrowed by one party from another. Generally, debt is seen in a negative light, and for valid reasons. However, certain kinds of debts can be beneficial, allowing you to get more of what you would have by saving up for items on your own.
Here are 4 examples of good debt that can help you achieve financial success and stability, whether you’re a retiree in a senior living facility or a grad student just starting out.
You’re likely familiar with mortgage debt. This type of debt can be beneficial for those looking to become homeowners, as it allows them to purchase a property that they may have otherwise not been able to afford. Additionally, mortgage debt may entitle you to tax deductions, as the interest payments are typically deductible from taxes.
However, there is the risk of falling behind on payments and going into default. Also, if you take out a large mortgage loan and the value of your home drops, you could find yourself owing more than the property is worth.
Student loan debt is increasingly common, with many students taking out loans to pay for college tuition and other educational expenses.
While this type of debt is typically seen as good because it enables people to pursue higher education, creates career opportunities, and comes with lower interest rates than other forms of debt that make them easier to manage, it should still be taken seriously.
The main risk of student loan debt is the potential for being unable to pay it off due to a lack of employment or other financial hardship. And when you fail to make payments on time, your credit score will likely be negatively impacted.
Credit Card Debt
Credit card debt is often seen as “bad” debt, due to the potential for getting into unmanageable debt. However, when used responsibly, credit card debt can be advantageous.
They can be beneficial if you use them to make small purchases that you would have otherwise paid in cash. Plus, they often come with rewards such as cashback or airline miles, which can reduce the overall cost of your purchases.
Auto loan debt is used to purchase a vehicle.
An auto loan allows you to purchase a vehicle that you need for transportation and other everyday activities. Additionally, depending on the loan terms, it may also have a lower interest rate than other forms of debt.
Again, there is always a risk of falling behind on payments or going into default if you are unable to make the required payments in time. And, if you purchase a vehicle that is more expensive than you can afford, it can quickly become a financial burden.
Debt can be a useful tool for achieving financial goals, but it’s important to understand the risks and benefits associated with each type of debt before taking on any additional debt. Careful consideration and responsible management of your finances will help you make the most out of your money and achieve long-term success.