What is the difference between good debt and bad debt?
You can determine the difference between good debt and bad debt by asking yourself, "can this debt pay for itself?"
So, when you ask yourself that question, that helps you determine if it's a debt that you should consider to occur or maybe not. Want to know more? Then… watch this short video!
For example, you use your credit card on a shopping spree. And since it is the holiday season, I am on your gift list - thank you very much! (I'd love it if you buy me a new outfit but don't put it on your credit card. ;)) Just kidding!
The shirt (you bought for me)has lost its value since the day you bought it.
That would be considered consumer debt. Consumer debt consists of personal debts owed due to purchasing goods used for individual or household consumption.
Examples of consumer debt:
Car Loan
Home Mortgage
Student Loan
Car Payment
Another debt that is considered to be bad would be your car payment. Because that's something, again, you drive the car off the lot; it automatically loses value.
Home Purchase
To be candid with you, some advisors consider a home purchase a good debt, and I'm not sure if it's good or bad debt. I know that an investment property could be an outstanding debt. However, that's something that will pay for itself.
Now, to answer the question - does this debt pay for itself? Of course, that's if you have tenants that are paying your mortgage. However, I consider being a homeowner a good debt because you have to pay your rent.
So, it's the difference between paying the rent and paying a landlord's mortgage or paying your mortgage and reducing what you owe on it while the property appreciates.
Student Loan
The last thing to consider when you consider debt would be a student loan. It could go both ways. It could be good debt or a bad debt depending on if that college training helps you get a job that will then pay the loan off.
If the college training is one field, you work in a different area, which may not be a good debt. But, of course, you can't make that determination when you're considering college because clearly, college is a good choice! It's just how you pay for it is something to consider.
Thanks for watching!
If I can answer any questions more specifically about real estate, I'd be happy to be able to help you. I'd been selling homes in Northern Virginia since 2007.
My name is Dan Rochon. There's not a nook or cranny in Northern Virginia that I have not seen and don't know intimately. So I'd love to be able to answer your question. You can call, text, you could email me. You can get me days and nights, even weekends.
I look forward to helping you. Thanks!
If you're interested to learn more about Real Estate Investing or tips and strategies about Real Estate, you can reach me at 703-346-2776 or send me an email at Dan@greetingsvirginia.com. We will be more than happy to help you.
Have a question about buying, selling or investing?
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