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By Alliant Credit Union
When personal finance experts talk about debt, they sometimes categorize debts as either “good” debt or “bad” debt.
Good debt is used to pay for things you need that will generally appreciate in value over time, like a student loan that will ultimately increase your salary, a loan to start a business, or an affordable mortgage. An auto loan might be considered as good debt, but only if you need a vehicle for your work, get a low-interest loan and purchase a practical vehicle that is not too extravagant for your income.
Bad debt is debt accrued to purchase something that you want (but don’t need) and that does not appreciate in value. If you borrowed money to buy a high-end sports car, if you’re buying expensive clothes that you can’t afford or charging weekend bar binges with friends on your credit cards, you’re accumulating bad debt.
If you’ve accumulated “bad” debt, it’s time to work on reducing that financial burden by getting your spending and debt under control. Controlling your debt is something that you have to work on all the time, and the longer you delay, the tougher the job gets.
A follow-up article on Three Types of Good Debt was published on the blog on October 22, 2014.