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GOOD DEBT vs. BAD DEBT

posted May 26, 2017, 2:43 PM by Donna Telep

 

A lot of people think that going into debt is always bad, but there are really two types of debt.

 

GOOD DEBT – Borrowing to purchase something that is going to appreciate in value is considered good debt. Two examples of good debt are:

 

· Buying a Home – A home is an asset which goes up in value over the long term so is considered a good investment. Interest rates on mortgages are very low so your cost of borrowing is reasonable and you are investing in your future each month.

· Student Loans – Investing in your education will increase your future earning   powers and employability, so these are also on the good side.

 

BAD DEBT – Credit card debt, which is usually used to purchase consumable products that depreciate in value, is considered bad debt. Interest rates on these debts are very high, so unless you can afford to pay them in full each month, they are very costly.

 

You do not want to use up all your cash reserves to pay out or reduce debt; it’s good   financial planning to ensure that you have cash reserves for emergencies or future investment opportunities such as RRSP’s .

 

Using good debt to pay out bad debt is always a better choice. You save a lot of interest and reduce your monthly payments so you can have extra cash each month to increase your savings.

 

Call me today to take a look at your investment strategy... Are you on the right track?

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