Ashley Temer is a Financial Representative with Northwestern Mutual who helps professionals, families, and business owners plan for financial security. She’s here for your “Money Minute.”
Do you know the difference between good and bad debt?
First of all, not all debt is the same, nor does it impact your credit in the same way. If you have debt and manage it responsibly, that can help you get ahead financially. Second, you can’t spend every dime paying off debt. You have other goals too, right? It’s important to balance paying off debt and funding your goals simultaneously. That is what managing debt is all about.
Credit card debt is considered “bad debt” because interest rates can get very high. Credit card debt is typically the first thing you want to tackle when developing a strategy to manage debt.
On the other hand, good debt, such as a mortgage can be categorized as an investment that will grow in value over time. The interest paid is generally tax-deductible. Student loan debt is also considered “good debt” because it is an investment in you, your education, and your career. The expectation is that the investment will pay for itself over your lifetime.