This is a collaborative post.
When it comes to money management, one of your main goals is to avoid debt. We have all been conditioned to view debt as this negative thing, largely because lots of people end up in it and their lives are ruined.
Nevertheless, it’s really important to understand the concept of good debt. Yes, there are times when being in a bit of debt can actually be good for you. This might sound confusing, so here’s an explanation, alongside some examples of good debt.
What is good debt?
Simply put, this refers to instances when you put yourself in debt, yet you receive benefits from it. The benefits can be instantaneous, or they might come in the future. On the contrary, bad debt refers to cases when you are in debt without gaining any benefits. An example of bad debt is missing rent payments and owing your landlord money. You gain nothing from this, it can negatively impact your credit score, and you put yourself at risk of falling into a debt spiral.
The easiest way to understand good debt is by looking at examples. So, here are three for you to mull over.
Investing in your education
Spending money on your education is a fantastic example of putting yourself in good debt. You have websites like MyCPR NOW that charge money for courses which can help you gain skills and make you more employable. Sometimes, the cost of these courses is too much to pay in one go, so you take out a loan. The same can be said of going to college – you need a student loan to pay your way. But, on the other side, you come out with more qualifications, allowing you to get better jobs to make more money in the future. So, the debt is worthwhile in the long run!
Getting a mortgage
Mortgages are the best examples of good debt because you gain the huge benefit of being on the property ladder. Sure, you’ve taken out a huge home loan that takes decades to repay. But, you now own a house. This house can be flipped for profit, rented out to make more money, or simply lived in by you and your family for many years. In any case, it is beneficial as you no longer have to pay rent, you’re in control of the property, and it is an investment that almost always generates a positive return in the future.
Using a credit card
Responsibly using a credit card is another great instance of putting yourself in good debt. Why? Because getting a credit card and making small payments every month – and paying the bill in full – will help you build a good credit rating. It proves you are capable of paying off debt, which strengthens your standing with credit agencies. A good credit score makes it easier to get a mortgage with respectable interest rates, helping you save money.
The bottom line is that not all debt is bad debt. Good debt does exist, so don’t hold back from making decisions because you’re worried about being in debt. If you benefit from it, it could be worth spending a bit of money.
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