Don't Waste Your Money: Know the difference between good and bad debt

(Toledo News Now) - We all know that having thousands of dollars in credit card debt is a bad thing. So is taking on thousands of dollars in new debt for a car you cannot afford. Still, some debt is not so bad.

Thinking of taking out a loan for college, a car, or a home? A new report said some loans fall under the category of good debt, but many more are bad debt.

So how do you know the difference?

Ten years ago in the days before recession, we shopped until we dropped, and debt was considered a good thing. That is not the case anymore.

A new report in U.S. News & World Report said debt is now a dirty word, whether it is too much charged on the credit card, or the exploding problem of college loans. U.S. News said the average college graduate now carries more than $25,000 in debt. However, the report explained that is not necessarily bad debt if it helps someone land a good job.

According to the report, bad debt is:

  • Used as cash, such as credit card debt.
  • Used to buy a depreciating asset.

The report said good debt is:

  • Something bought with a very low interest rate.
  • Used to finance something that adds value, such as a home or college degree.
  • With tax deductible interest, such as a mortgage loan. Home loans today have record low interest rates.

Knowing the difference between good and bad debt could save you a lot in the long run, so you don't waste your money.

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