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Everyone carries debt these days, be it a car loan, credit card debt or a mortgage. Good debt typically provides a greater return on investment than the interest being charged and tends to fit well within your bigger financial picture. #Mortgage #HomeLoan #GoodDebt #BadDebt
Home Mortgage is meant to be a good debt, because it allows you to leverage a home of greater worth than you can hope to save for and buy.
Similarly, a mortgage could be considered good debt because it benefits your family while a car loan may be necessary to provide transportation to and from work. A mortgage is considered a long term asset. A car loan must be carefully analysed to balance your needs and wants. You might want a sports car but realistically a family SUV might be more practical and economical.
You could also argue that a student loan is good debt because higher education is an investment in your earning power.
But there is a catch. When payments on good debt become unmanageable, they start to feel like bad debt — and it could rapidly become an ugly situation for you. For instance, student loan payments on a degree that didn’t boost your income, or mortgage or car payments that eat up too much of your take home salary, can rapidly lead you to rely on credit or loans to cover day-to-day expenses. Credit card debt tend to spiral out of control because of the higher interest rates.
The bottom line: Good debt only stays that way if it is part of a well-thought-out financial plan. Otherwise, you may be turning something that’s meant to be good into something that ends up being bad for your budget.
Call Madhu on 0425 341 086 to discuss your ideas and views.
