BIG DEBT ENERGY
Like 90’s fashion, debt gets a bad rap. It’s no question that millennial’s carry around a lot of BDE. But not all debt is bad.
IS THERE SUCH THING AS GOOD DEBT?
There’s an argument to be made that no debt is good debt. But there are case where taking on debt pays dividends in the future. ‘Good’ debt is anything that is likely to increase your net worth. Think: home mortgages, small business loans, a degree.
Unlike bad debt, there’s probably no urgent need to pay this off ASAP. So make your payments on time and budget for them along with your other money goals.
Student Loans
Student loans allow you to get an education and increase your long-term earnings potential. People with a bachelor’s degree earn 66% more in their lifetime, on average, than those without a degree. And those who take on a small amount of debt to complete trade school also significantly increase their earnings potential, especially with today’s current shortage of tradespeople.
Small Business Loans
These loans can allow you to start or grow a profitable company to increase your future cash flow. And while not all new businesses are thriving, Small Business Association loans do require you to create a comprehensive business plan — forcing business owners to consider both their goals and risks.
Mortgages
Mortgages are also generally viewed as a source of good debt. You have to live somewhere, and by taking on a mortgage, your living expenses build equity in an asset, instead of just going to a landlord. Also, it gives you the security and stability of owning your own home.
Just a reminder: It’s true you can have too much of a good thing. Taking on more debt than you can handle can throw you off track if you let it get out of hand. And ‘good’ debt with a high interest rate can still set you back a LOT of money.
AVOIDING BAD DEBT
Speaking of the bad… lets get into it. Bad debt is when you borrow money to buy something that loses value over time and won’t boost your net worth. Enter: a high credit card balance, high interest car loans, personal loans for voluntary purchases like vacation or football tickets.
In general, bad debt is any debt that is looking to exploit our desire for instant gratification. You should always try to avoid debt for consumer goods and entertainment or with high-interest rates.
GOT DEBT? GET A GAME PLAN
Write a list of what you owe, beginning with the highest interest rate and working your way down. Be sure to make the minimum monthly payment on each debt. And focus on chipping away at the one with the highest interest rate first to save the most $$$ in interest.
Keep going. It can be hard to save when a chunk of your money is going toward digging yourself out of debt. If you know what you’re getting into, debt-wise, it’ll be much easier to manage down the line. And if you’re already in bad debt, make paying it off a priority.
