Home > Managing Debt > Is There Such a Thing as ‘Good’ Debt?

Comments 0 Comments

As unfortunate as it may be, many of us are going to be faced with debt at some point in our lives. Whether it’s credit card bills, student loans, or a mortgage, there are numerous ways debt can weasel its way into our finances. But what if I told you that debt didn’t have to be a bad thing? While it isn’t always the best way to get the things we need, debt can be an incredible financial tool if used effectively.

So, to help you minimize the chances you’ll take on bad debt, here are five questions you may want to ask yourself before signing off on your next major loan.

1. Is This The Best Way to Get What I Need?

Before taking out a personal loan or opening up another credit card, you should consider asking yourself if this is the best option for you. For example, is it really necessary to purchase a new car with this new car loan right now or can it wait till you have more money saved? Rather than paying interest, maybe it’s best to wait until you have enough money to purchase this outright or at least take on a smaller loan size.

2. Can I Afford the Monthly Payments?

You may have enough money for the down payment on your loan, but you should ask yourself if you will have enough money to make monthly payments for the next five-or-so years. Can you truly afford the payments? If you think you will be struggling, then your debt can go from “good debt” to “bad debt” rather quickly. When adding this additional debt, always try and find out what your term is. This will feel like an end-goal knowing you can have this debt paid off in five years, if you can afford it, rather than 10.

3. How Does My Credit Look?

Before taking on any new debt, you should consider checking your credit report and make sure that you haven’t had any missed or late payments. This is important because if you have managed your debt well in the past, then you’ll get better loan terms in the future. If you have a good credit score and credit report, then you may get a better loan. If you don’t, then sometimes it is harder to get the loan you are looking for, especially if it’s a larger loan from a private lender. It’s a good idea to check your credit before you fill out any applications. You can do so by viewing your two free credit scores each month on Credit.com.

This goes the same for a credit card. Before you receive a new credit card, you first have to see if you qualify or have enough credit for one. If you have bad credit or a low credit score, your application may be denied.

4. Will This Debt Overwhelm My Budget?

As you get older, saving becomes more and more important. Before taking on this new debt, try and make sure that you will still be able to save towards your retirement or savings. To make this easier, consider budgeting. Add this additional debt to your budget to see how much leftover money (if any) that you will still have. If your budget is tight, then consider cutting back on your payments to your savings account. Instead of contributing 10% of your income to your 401K, maybe stick with 5% until you can fully manage paying off your new debt.

5. Is This a Reputable Lender?

Whether you trust your lender or not, when taking out a loan you should consider getting a second opinion. Try not to go with the first bank that offers you a flat interest rate. Shop around for interest rates and terms before making your decision. You want to make sure that you are taking out the loan that is right for you, don’t be pressured to make your decision right away.

Depending upon how it’s acquired, debt has the potential to be a major burden or boon on your life. Before signing on the dotted line, consider taking the time to ask yourself these questions to make sure this new debt is right for you. Debt has the power to make or break your financial future, so you may want to be sure you give it as much time as you can to think over the situation.

More Money-Saving Reads:

Image: AbleStock.com

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team