Good debt vs. bad debt

There are a lot  theories out there about debt management.   Some people will expound on the virtues of being debt free and others will finance anything with a low APR.  Wise consumers know the difference between “good debt” and “bad debt”; and how to manage it.

“Good debt” is debt obtained in the pursuit of a long term investment.  This can include the purchase of a home or the financing of an education through student loans.   However: be wary. This debt is only “good” if the intended outcome was obtained.  If you take out student loans, but fail to graduate, those loans will still go into repayment.

“Bad debt” is debt for any consumable good.  This includes all credit card debt and most auto loans. Credit cards are frequently used for purchases that people normally could not afford and as such can lead people into dangerous financial situations.  Financing a car, while sometimes necessary, is financing a (rapidly) depreciating asset and should be done cautiously.

Good debt management is done by people making wise decisions about their future.  Consumers should never finance “impulse” purchases and always consider the long term consequences of  their actions.