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Revisiting Good Debt Versus Bad Debt Technorati (blog)

26.05.10

 

Debt has a few useful purposes: it allows us to establish a credit history (hopefully a good one) and enables us to acquire things before we have the money to pay for them.

Conventional wisdom breaks down debt into two kinds: good debt and bad debt. The theory goes, when debt is used to acquire items that will appreciate in value (or increase over time) it is "good" and when debt helps us buy things that steadily depreciate (or decline in value) it is "bad."

For example, if you want to buy a house but can't pay cash for the whole asking price, getting a mortgage — a loan secured by the value of the house — will enable you to purchase it.

Provided you've done your homework on the location, condition and comparative pricing of the house and you can afford the loan payments, this would seem to be a smart move taking on "good debt."

Source:

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