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There are many different types of debt, but did you know some debt can be good? It would be a mistake to think any type of debt is bad, let's go over the difference between good and bad debt.

Bad Debt

Bad debt usually consists of payments you did not need to make. Credit card debt is an example of bad debt, it consists of high interest rates and won't look that great on your credit score. Credit card debt is bad debt because it is so easy to fall into, and can cost you so much money. If you miss one payment your interest rate could skyrocket, which would lead to very bad debt.

Good Debt

Yes, there is such a thing as good debt. Perhaps a better name is necessary debt, debts that you have to pay. Your mortgage can be a good debt, if you did not get in over your head when you originally took one out. Your mortgage payment is a necessity, so it can be considered a good debt. The same is true about your car payment or even a student loan. Paying off good debt gives you better credit history, which can help you avoid bad debt in the future. Basically good debt is any debt that is necessary and looks good on your credit report. Just because you owe someone money does not mean it necessarily a bad thing.

Pay Bills on Time

It does not matter whether you have good or bad debt, make sure you pay your bills on time. You may have a good debt like a mortgage, but if you start missing your payments it is still going to look bad on your credit report and cause future debt problems. In order to stay out of debt you need to manage your good debt while avoiding bad debt. If you do this you should be just fine.

Check out our debt tips page to learn how to better live within your means.