Debt is a lot like cholesterol. Some debt is good and too much bad debt will make your life miserable. Through our financial lives, it’s only the good debt that we want to allow on our balance sheet. Good debt improves our lives over the course of time. Here are 4 types of good debt.
Real Estate
Real estate is the cornerstone of much wealth in the US. For most of us, our homes will be the largest and most valuable asset we’ll own. Unless you’ve “come into money” chances are good that you are going to have to take out a mortgage to pay for your home. This is considered good debt because you’re buying an asset that should increase in value over time.
Investment Real Estate
Right along with your home, owning rental property can be very lucrative. If you have the chance to purchase a rental property and then rent it to someone for a monthly payment larger than your mortgage payment, jump at the chance. That’s a great way to build wealth and generate income.
Education
It is impossible to put a value on a college degree. With a college degree, the money you earn over your career will eventually make the cost of school pail in comparison. There are always going to be stories about people without college educations “making it big” somehow. Those people are the exception rather than the rule. Get as much education as you can. You’ll earn more as a result.
Cars
The thought of borrowing money to pay for something that begins to lose value as soon as you have the keys in your hand seems to go against the “good debt” principal. However, we need a car to get to our jobs, and get other things done in our daily lives. If you buy your car the right way, it can be an asset to you and not a big financial drain. When you buy a car, go for the largest payment you can over a two year period and look for a car that will fit that schedule.
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