The different types of debt you need to know

Sharing is caring!

What is good debt

Wait, good debt? Yes, in this blog post I’m going to be talking about two different types of debt. There is the good and then there is the bad. I like to keep things simple. For some, finances can be a bit confusing. My goal is to make your debt-free journey as stress-free as it can possibly be.

Good debt, at its core, is a loan you take on that will potentially increase your net worth. Since student debt is a focus for me I’ll use going to school as an example of good debt. As a student, you invest in your education to go on and get a job with a salary that allows you to live comfortably and eventually pay back that debt. Going to school can increase your learning potential. However, I always like to encourage people to do what is right for them and their goals. For some people investing in a degree program isn’t necessary and in that case, you save yourself thousands of dollars.

Having ownership over something that is considered a big-ticket item like a house is also considered good debt. Traditionally speaking buying a home and living in it and selling it at a profit later naturally turns what was bad debt into a payday.

Bad Debt

Now let’s talk about the not so fun and bad part of getting into debt. If you know anything about money, then you know that bad debt is pretty easy to get into. This happens when you borrow money to purchase items that depreciate. Essentially, you’re not generating any income long-term. 

That car you’ve had on your vision board for years is an example of bad debt. You finally get the make and model yet as soon as you drive off the lot with it the value is no longer what it once was.

Credit cards is a major source of bad debt. Did you know total U.S. consumer debt is at $13.86 trillion according to debt.org? I can’t stress this enough. Make it a point to pay the total balance at the end of your billing cycle. The last thing you want to do is be stuck in a cycle of making the minimum payments each month.

Moral of the story: if you can’t afford something try not to buy it. This is especially true if the purchase does not appreciate in value. If you do find yourself struggling to pay off the different types of debt there are different methods to paying it off. Check out this blog post on the debt snowball method. Be sure to follow Money Multiplied on Instagram and subscribe for more tips!