Does “Good Debt” even exist?
The words ‘good’ and ‘debt’ don’t seem like they would belong together. However, big purchases such as buying a car or a home are not often done without taking on a loan. Of course, debt that occurs from careless spending can do nothing but harm you. Nevertheless, justifiable loans can enhance your quality of life and a more nuanced understanding of the effect of said loan can help you determine if taking one out is worth it.
How does good debt work?
If you’re a fan of the Fresh Prince of Bel Air, you may remember Uncle Phil saying “My money makes money!” in Season 5 Episode 12. In that line, Uncle Phil was referencing how he will make back the money he invested plus a little more! When you invest your money towards a worthwhile cause, you may get a return that is higher than the initial amount you put in. Borrowing money to invest for these worthwhile causes for a higher payoff in the future is an example of good debt.
What is ‘worth’ going into debt for?
Everyone’s circumstances are very unique so there is not a set checklist of things that are “worth” going into debt for. That said, here are some investments that many people see a return on.
- Home ownership
- Other investments that will help you build wealth or increase your income in the future