Good Debt versus Bad Debt

To manage debt properly, it's important to distinguish between "good debt" and "bad debt." From a purely financial perspective, good debt refers to borrowing to purchase assets that are likely to appreciate in value, such as a home or a business. Good debt may become even "better" if an individual is able to itemize certain repayments (e.g., home mortgage interest) on his or her tax return and, as a result, qualify for certain tax deductions. Conversely, bad debt refers to borrowing for a consumable, such as a vacation, or for an asset that is likely to depreciate in value, such as an automobile. Today, bad debt may frequently become even "worse," since interest on personal loans and credit card debt is no longer tax deductible. CRN:200801-2011793

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