January 17, 2012
Good Debt vs. Bad Debt
Being debt free sounds great in theory, but it’s not the reality for most of us.
Still, finance experts say there's a difference between good debt and bad debt.
The average credit card debt per household is more than $15,000. But a recent study shows women are more proactive about paying off debts and increasing savings than men.
So, how to differentiate between good and bad debt?
“Good” debts include mortgages, school loans and financing a car – anything that contributes to a better future or big payoff, according to experts.
“Bad” debts include credit cards, clothing and vacations – any non-essentials you
can’t really afford.
“Debt is only good if you acquire it to pay for an asset you could later sell for more than you originally paid for it,” says financial radio talk show host Nicole Bazemore.
CNN Money reports that monthly long-term debt payments shouldn’t exceed 36 percent of your gross monthly income.
To keep debt from growing, Bankrate suggests treating credit cards like “emergency safety nets” and creating a pay-off plan that eventually brings your debt balance to zero.
We know taking on too much debt is never a good idea. You can track your debts and payments by frequently checking your credit report online – since lenders frequently look at what kind of debt you have.
Bonus PINK Link: Learn how to become debt free faster in our online exclusive.
By Sidmel K. Estes
“Before borrowing money from a friend, decide which you need most.”
*Supporting images from FreeDigitalPhotos.net, phanlop88, JMD Photo, and vichie81.