What Is Good Debt?

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We’ve all heard the saying that no debt is good debt. In fact, most people dream of being in the scenario of not having a credit card payment ever again! However, in order to show financial institutions that you’re a worthy borrower, having some form of debt is a must. This is especially true when financing large expenses, such as a car or new home.

So, while you may be avoiding debt, keep reading to learn about the different types of debt and how each can impact your financial standing.

What Is Good Debt?

Good debt can be defined as debt that increases your net worth or helps you to generate income. For example, going into debt to get a college education, to buy a home, or to start a small business is generally considered good debt. This is because these debts benefit you.

Getting a college education increases your chance of landing a high-paying job. Owning a home is a great asset that can be used to generate income in the future. A business can lead to major wealth.

What Is Bad Debt?

On the other hand, we have bad debt. Bad debt is when you borrow money in order to purchase depreciating assets. If you buy something that won’t go up in value or won’t make you income, it’s generally considered bad debt.

Some of the most common forms of bad debt include:

  • Cars
  • Credit cards
  • Clothes
  • Vacations

While bad debt can be very tempting, it’s best to avoid it. Of course, if you need a car to get to work or need new clothes, it’s acceptable to buy these things. However, you always want to stay within your spending limit and to avoid charging your credit card unless necessary.

Debt Considerations

There is a gray area when it comes to debt. Before you determine if debt is good or bad, you’ll first want to take a look at your financial situation, along with other factors.

For example, if you already have different types of debt, you may benefit from a consolidation loan, which allows you to pay off your debt at a lower interest rate.

For others, charging a credit card routinely may be good debt instead of bad. Many credit cards offer robust reward programs, offering perks such as cashback, free cruises, airline tickets, and discounts.

How a Credit Union Can Help

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Whether you want to better manage your debt or if you’re interested in a loan for a home or business, a Texas credit union is a great resource that you can use to your advantage. Here you’ll have access to all of the services you need to get your finances in line.

Looking to build credit? Want a loan with a great interest rate? Serving as one of the top Texas credit unions, The People’s Federal Credit Union offers low rates on a variety of loans, including mortgages, and home equity loans, along with auto, RV, and boat loans. We also offer a Financial Wellness Center to help customers improve their financial security and independence.

Let us help with your debt situation, however good or bad it may be! Call our team at (806) 359-8571 to discuss your needs.

Have Questions? Let's Talk

If you want to learn more about any of our products, services or becoming a TPFCU Member call us at 806-359-8571, visit a branch, or simply enter your email address below and we will contact you.

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