Good Debt Does Exist

With so much talk of debt horror stories in the last year, it is hard to believe that there is such a thing as good debt. But good debt does exist and in fact, good debt can actually have a positive impact on your financial future and credit rating.

Here are some examples of good debt and how you can use it to your advantage:

Become a Home Owner
Most people can not afford to pay for a home in full using cash at any point in their lifetime so they will rely on a home loan to make their dream of owning a home a reality. Unfortunately, in years leading up to the recent housing market crisis, too many people were getting approved for homes they could not afford to buy and loans they could not keep up in paying each month. This lead to the widespread occurrence of foreclosures. But owning a home is still very possible for most people and the benefits are numerous. Of course, lenders are now being much more critical of credit worthiness and income but getting a loan you can afford can still happen. To make your purchase even more beneficial, you should plan ahead to save up as much money as you can for a down payment which will keep you from spending less in interest over the years. A typical lender would like to see 20% or more for a down payment. Mortgage interest is typically lower than other debts and you can deduct the interest you do pay on the loan up to the first million dollars.

Buy A Car
Financing a car is also an example of good debt. There are many factors that affect how you finance the  loan, including how long you plan to keep the car and how much money you have in cash to be used as a down payment. It is recommended that you put down as much cash as you can afford to do to keep your payments low and the interest at a minimum. Typical auto lenders would like at least 10% down for a car. Some consumers think that using a home equity loan is a better way to finance a car because of the lower interest. That may be true but defaulting on the payments means not only do you lose the vehicle but also your home. Some consumers, those that do not wish to drive a car till its last day, mau wish instead to lease a vehicle. Of course, leasing a vehicle may cost more in the long run and comes with it’s own set of rules, but the process of the car financing if done correctly can help to build your good credit standing.

Pay for College
Consumers often find themselves in a quandary about what is most important to save for – the education of their children or their own retirement fund. If you look at the situation this way, you’ll find it makes sense to save for retirement: kids who are going to college have a lot of financial resources to help make higher education affordable including student loans. When you retire, there are no elderly or retirement loans you can take out to ensure your future expenses are covered. Save what you can without taking away from your own financial future. When the time comes, students and parents alike can qualify for federal loans that are based on financial need and whose low rates and no interest payments until after graduation is a better deal.