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   So What is Good Debt?

So what is good debt? Having no debt at all... being debt-free.

Yet, if your financial situation does not permit you to pay everything as you go... here is some advice about what "good" debt really is!

* "Good" Debt Comes from a Guilt-Free Mindset:

Debt carries a lot of negative emotional charge is just about any society. The common wisdom that good debt comes from buying things that are a "necessity and not a luxury" and when you do not follow that rule you "get what you deserve!"

Most problems with debt arise when people fail to see it for what it is... a business arrangement where a bank lends you money and you pay it back with interest. If you pay back your debt for necessities or luxuries, from the credit perspective, that is all that matters. Get rid of your guilt!

* "Good" Debt Comes from Improvements to Real Estate:

Whatever else the investment community would have you believe, the best investment you could ever make is the one in your home. Over the long term, real estate continues to outperform everything else.

The simple truth is that everyone always is paying a mortgage. If you own a home, you pay your own mortgage and you get tax breaks. If you rent, you are paying another person's mortgage and you get no tax breaks. So if you have a home mortgage, relax, this debt will be paid when you sell the house... or die!

* "Good" Debt Creates Cost Savings:

Good debt comes from buying an asset that will help you to lower ongoing costs in the future. The best example is a home improvement loan. If you went into debt to install storm windows-doors and extra insulation in your house, this will your lower future heating and cooling costs. This is the best kind of debt because "cost savings" purchases are the only ones that are guaranteed to pay for themselves.

* "Good" Debt Helps You With Money Making:

Good debt comes from buying an asset that will help you to make more money in the future. The best example is a student loan. Education has always been the way to the creation of true and lasting wealth. When you get an education, you are making the best investment in the biggest asset you will ever have: yourself.

If education lands you a high paying job, the loans to get it are the best debts ever. Yet beware of investing in "get rich quick schemes" because all they do is teach you how to get deep into credit card debt.

* "Good" Debt Comes from Asset-Liability Matching:

English translation: good debt comes from using it buy an item (asset) that will long outlast the debt (liability) incurred to purchase it. The best example is an automobile loan. If you took out a 5 year car loan (and pay it off) but you ending up owning the car for 10 years, that was "good" debt. You will really do yourself a favor if, when the car is paid off, you apply the same payment to your credit cards.

* Good" Debt Comes from Investing in Protection Plans:

If you purchase a "big ticket" item (cars, appliances, furniture), credit cards are usually the only way you can purchase protection on these items. The best example is charging home warranty insurance. If your $4,000 heater breaks down, and it costs you $400 to get it replaced with one of these plans... the charge was totally worth it. If you bought a used car, and it saves you $1,000 in repairs, good deal!

* Good" Debt Helps in Tax Accounting:

If you are making donations, charging it helps on your income tax return. Your credit card statement is proof positive that you paid it. If you are a small business owner, you will want to take advantage of the free accounting that credit cards give you. If you are a parent who has cosigned on a student credit card, you will want to keep an eye on what your child is charging... that you are responsible for!

* Good" Debt is Needed for Access to Services:

Some merchants will not take cash (I do not take it). Cash can get lost in the mail (yes, minimum wage postal workers do troll for cash). Cash can be counterfeited (the bank will find that out and it will invalidate your deposit). Cash cannot be returned safely (there is no proof for the refund). Cash takes extra time (it is not automatically recorded and tracked). Credit is the only way to access all services.

* Good" Debt Saves Money as in "No Payments for a Year":

In another section, the perils of "No Money Down, No Payments and No Interest for a Year" are discussed. Yet if you save up for these purchases and pay them off in EIGHT months (do not wait for the full year to pass) then they are a good deal. Why 8 months you wonder? This gives time for the payment to be processed with no chance of mistakes happening. Consumers fight back!