Living debt-free can be almost impossible in our current economic climate. Many of us can’t afford to buy a home or send our children off to college without taking out loans.
As of April 2014, the average U.S. household had $15,191 worth of credit card debt. The average student loan was double that amount, at $33,607. But what really takes the cake is the U.S.’s average mortgage debt, standing at $154,365.1
Avoiding debt at all costs isn’t necessarily the best idea. Recognizing the distinction between good debt and bad debt will make all the difference in your wallet.
Although it may sound odd, there is such thing as good debt. This is usually using debt as an investment where you have the resources to pay off such debt as scheduled. Some instances where taking on debt is “good”, assuming you can afford these items, include purchasing a home, going to college, or financing a car within your budget. If you make consistent payments on these items, it may show future lenders that you are responsible with credit.
Bad debt is something more people are acquainted with. You acquire bad debt when you purchase items that are unnecessary or out of your price range. An example of bad credit card debt is when a person has multiple credit cards with balances that are halfway to the credit limit. The most threatening form of bad debt is debt that is acquired to pay for frivolous items. The challenge is using sound judgment to determine which debt is practical for your life goals, and which debt you should avoid altogether.
1Chen, T. (n.d.). American household credit card debt statistics: 2014. Retrieved from http://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/
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