What is debt? Simply stated, debt is money you owe to a person or business. People borrow money when they do not have enough to pay for something in full. The most common debts we think of include house loans, car loans, and credit card debt. Most Americans have some type of debt which means that you, reading this right now, are probably paying off a loan (or two or three).
Not all debt is bad. Debt that can provide a return on your money may be viewed as good debt. Mortgages on a home that appreciates in value, a student loan that allows you to receive an education, a business loan that provides you a source of income and benefit to the community are examples of good debt.
On the other hand, bad debt depreciates in value and may have high interest rates. Cash advances, credit card loans, and consumer loans are examples of bad debt. Though your car provides you with transportation, car loans can also be considered bad debt because they lose value as soon as you drive it off the dealership. Good debt could turn into bad debt if you borrow more than you can afford to pay back, are paying high interest rates above the general market, or do not know how much you owe.
MMM tip: Awareness is key. Add up all your debts as of today so you know how much you owe.
Until next week,
Dariene
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Disclaimer: This newsletter is for informational and educational purposes only and should not be considered financial, investment, tax, or legal advice. I am not a licensed financial advisor. Please consult a qualified professional before making any financial decisions.
