Good debt is generate long-term income. Basically it creates value in your life; student loans, car loans, home mortgages and business loans.
For Example, My neighbor Mr. Lopez got a student loan to become an engineer. After he finished his school, he got his first job as an engineer at an oil-gas company. Because of the student loan, he was able to pay his school tuition, finished his school and got his first engineering job. After his old car stopped running, Mr. Lopez got a car loan to buy a new car to go back and forth to work. As another example of good debt, instead of continue paying rent, I got a home mortgage and bought my first home 11 years ago. After the interest rate went down, I refinanced my house. Thus, I started paying less money for a less term. (15 years)
Bad debt is the opposite of the good debt; it does not create value. It increases your expenses and decreases your saving. The best example is having all the credit cards and not paying the balance in full. Most of the credit cards comes with their high interests rates; therefore, living balances on these cards keep increases your payments. As a result, while your saving decreases, the financial companies increase their profits.
What do you think about a personal loan? Is it good debt or bad debt?
