Good Debt vs Bad Debt
Hello and Happy Monday!
After our last video on credit I received a bunch of emails about what kinds of things would maximize score potential. I recorded today’s video to talk about the three most commonly asked questions regarding what is good debt, bad debt, credit usage, and how long you should keep open lines of credit.
The truth is that credit usage can be subjective depending your financial situation, spending habits and current credit profile. The tips I am giving are best practices based on my almost 16 years in home finance.
This video covers a lot about what makes up good credit profile but I wanted elaborate a little more on the topic of what is “Good Debt” vs. “Bad Debt”? There are MANY different opinions on this topic… some will say all credit is bad, while others will say you HAVE to have it. My personal opinion is that credit should be used for the following two things:
1. To leverage investments. I qualify an investment as anything that will grow in value over what you pay in interest, earn cash flow or will bring you higher earning potential i.e. college education
2. Build a credit “reputation” aka credit score and can use it responsibly than it is good debt. Something I did not mention in the video but also feel strongly about is financing.
I consider “bad debt” to be lines of credit that are over leveraged and not likely to be paid back. They typically have high interest, high fees, and might be in collection status.
I have two previous blog posts and a video with strategies on how to get out of debt on this blog, and would love to help provide additional resources if you feel that this would be helpful to you!
My goal with Money Tip Monday is to always to provide you with practical ways to get ahead financially. My hope is that you will find today’s video helpful when it comes to credit, and that it will encourage you to email, comment and/or pass this one to friends and family who might also need this!
Looking forward to speaking with you soon!