Most of us know that credit card debt is a leading factor in bankruptcy, and that a $5 impulse purchase put on a credit card can wind up costing many more times that amount as interest accrues. But as Americans, we have long believed that owning our own home is our birthright and that borrowing for a college education is money well spent. Can we be blamed, then, in believing that mortgages and student loans are good debt? As the good debt versus bad debt debate rages on, we, as a debt relief law firm, have seen that more and more people find that their houses are “underwater” and the newly graduated are starting out saddled with tens of thousands of dollars in student debt.
Only you can be the judge of what is “good debt,” and it has to be based on a long, hard look at what you can realistically afford:
- Do you have job security?
- Is your monthly income stable?
- Are you expecting to start a family, and how will that affect your income?
- When buying a home, how much of a down payment can you make and how much mortgage can you afford?
- Do you have enough savings put aside to weather financial emergencies?
- How much debt are you already carrying?
- Would it make sense to defer college for a year or two and save money towards tuition?
- If you need to take out a student loan, have you researched your options?
While college graduates still generally make more than non-graduates, limiting borrowing, choosing options (such as commuting over dorm life, or starting at a lower-cost community college and then transferring) may make sense. A house is more than a building, it is a home and the heart of your family’s life. It may just take some soul-searching and self-discipline to know what you can really afford. With some insight, planning and budgeting, you may find that certain debt is a real — and potentially good — investment in your future.