Good Debt
Before you begin to think about good debt, it is always important to remember to never let debt get out of control. If you spend within your means and you do not finance items you can't afford to pay back, then some amount of debt is okay. Incurring good debt can also increase your credit score, which will help you buy big tickets items later on. You will learn about your credit score in a future module.
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Buying a home within your means is an example of a good debt. |
Good debt includes necessities that you can’t afford to pay for up front. Buying a car to get to your job or purchasing a home to live in are examples of taking on good debt. Good debt is debt that creates value or increases your personal wealth in some way. Good debt can also help your credit score. Because public transportation in the United States may not get you everywhere you need to go, personal transportation may be a necessity. While cars depreciate (or decrease in value with time), they allow their owners to earn a living and manage other aspects of their lives. Additionally, homes typically increase in value over long spans of time and are considered an investment. Therefore the purchase of a home would also be considered good debt.
What about a college education? On average, according to the Trends in College Pricing 2014, published by the College Board, a private four-year university costs $31,231 annually and a public four-year college costs $9,139 a year. Not everyone can afford to pay that much money per year for schooling. Student loans are an alternative, but it is wise to never borrow more than you will be able to pay back. Remember, investing in college is investing in your future. For instance, in their lifetime, the average college graduate will earn over $1 million more than someone who just has a high school diploma. Thus, college loans are generally considered good debt since they generate income in the future for those who use them to gain a degree.
Reference:
Average published undergraduate charges by sector, 2014-2015. (n.d.). Retireved from: http://trends.collegeboard.org/college-pricing/figures-tables/average-published-undergraduate-charges-sector-2014-15
