Good vs. Bad Debt
When you borrow, you are taking on debt in some form. Depending upon a number of factors, this debt is either good debt or bad debt. Debt that is used to acquire appreciable assets can generally be considered good debt, while borrowed money used to acquire depreciating assets may be considered bad debt.
As life circumstances change for you there is always the possibility that good debt becomes bad debt (using student loans but not graduating). Conversely, bad debt can become good (using a credit card to travel to a job interview that you end up getting). The key here is to have as little debt as possible while ensuring that most of the debt you have is good debt.
Credit Cards
Credit card use is you borrowing money to make a purchase now that you repay at a later date — they are loans with interest rates. Credit card use in and of itself is not a bad thing and, if done responsibly, can have many benefits like helping with your cash flow, improving credit, and other card specific advantages.
Credit card debt can quickly add up and become unmanageable. Responsibility, self-assessment, accountability, and an income source are all necessary components of being able to appropriately utilize credit card debt to your advantage.
Student Loans
Student loans have fast become the primary source of funding for higher education students. They have also become a national debt crisis. If you are using student loans, you must have the knowledge of what student loans are and how they work, but also an understanding of how to borrow these loans in a smart fashion. The world of student loans can be confusing, complicated, and at times convoluted.
Debt Management
Regardless of the type of borrowing that you have done, or will do, you need to have a solid debt management plan. Creating and implementing this plan combines not only the terms and conditions of each of your debts, but also must take into account your values, motivations, and behaviors. When all of these factors are used to establish a comprehensive debt management plan you can rest assured that financial security is part of your daily life.
If you would like to hear more about this topic, please feel free to contact our office for a presentation, workshop, or individual coaching session. You can also access the Green to Gold Learning Modules for further self-directed learning and content.