Good Debt?

I'm currious as to what others would consider to be "good debt".  Say you had enough money to pay off all of your debt, are there certain debts you feel you should choose not to pay off and invest that money instead?

After I had paid off my other debts, I choose not to pay off a car loan because it was at 0% interest, however I did pay off a student loan that was at 5.5% interest.  Should I have let the student loan be and invested that money instead?  What's the cut-off point.

The question of good debt vs. bad debt has been with us for a long time. The financial gurus came to a conclusion that said debt is good if it is on appreciating assets while debt is bad if it is on wasting assets. Wasting assets being defined as assets that lose their value.

The most obvious example of a good debt is a house and the most obvious example of a bad debt is a car. One should also note that bad debt does not mean one is behind or delinquent to any degree if one has a "bad" debt. Good and bad only refer to the item purchased.

When it comes to a cut off point, one has to ask oneself what am I satisfied with in a rate of return versus the risk of the investment? Most people don't factor risk into their numbers because they don't know how to quantify risk. For example, I just made an investment that will return over a 52 week period a whopping 44% on my invested dollar. My wife sees that as one of the riskiest things I've ever done.

She believes the 5+% we are earning in our money market fund is where our money should be. If I interject cut-off point into our divergent beliefs, where would I put it in this case?

The question gets even murkier when I attempt to factor in opportunity cost. Could I have taken that same principal amount and earned 66% instead of 44%? If so, I cost my self the opportunity to earn an additional 22%. Your car loan is a great example of opportunity cost. The money you are paying the car lender even at 0% could be earning you 5% in a money market account. Only you can decide what way you want to channel those funds.

OK, enough of the financial philosophy and down to real answers. First, understand your cash flow. What is coming in and what is going out. Two, prioritize your debt and rid yourself of the most cumbersome as it causes you the most worry and the most stress. Third, save even a dollar a paycheck. You have to develop a savings mindset. You can develop an investing mindset after you are out of debt. Fourth, commit your game plan to paper and follow it. Don't veer. Fifth, every payday, review your game plan and revise to fit your present situation.

Just my 2¢.

I'm a simpleton when it comes to what is good debt.  I consider a mortgage (fixed rate) to be good debt because that is putting a roof over your head and will hopefully lead to you having owning a large asset free and clear.  The other good debt, in my opinion, is student loan debt, provided you are serious about pursuing your chosen career.  As to whether or not a person should pay these off vs. investing . . . I can't answer that.  I watch Suze Orman a lot, and it seems that she responds differently to every caller based on their tax situation, how long they'll be in their home, rate of interest on loans, rate on potential investments, etc.  Makes my head spin :)  Personally, I'd pay off every speck of debt I could, bad first and then good, and save the investing for later.

I consider good debt to be debt incurred out of absolute necessity or as an investment in your future.  Student loans = good debt, mortgage = good debt...

Bad debt, to me, is debt used to buy non-necessary items, trips, investments etc.

All debt itself is not good because you must pay interest on it and because it's something you owe and are obligated to pay back. Whether it's low interest or high interest it's still an obligation for you. So I look at the reasons - was it a good reason to go into debt (is there a payoff of a better job or real estate that will appreciate (and you don't throw away rent each month) or was it to satisfy impulse and selfish wants?

I suppose I chose a poor name for the title of the topic.  My question isn't so much what debt is good to incure, but rather what debt is good to keep if you have the means for paying it off.

I think sandlewood summed it up about the best it could be.  - If investing the money is going to make you more than the debt is costing, and the risk level is acceptable you should keep the debt.  Was hoping for some magic formula, but I suppose determining the acceptable risk is really the key and varies for each person.

I don't consider no part of debt to be good in any shape or form. I think that if it affects your credit in any shape or form then I think that it's bad. Now if I had an option to not pay off something then I wouldn't pay off the small things, like my old cell phone bills or something like that. Maybe even a hospital bill of some kind. But for the most part, I would try to pay off everything that I owed.

I guess a house can be considered good debt as long as its a good investment.

My personal view of good debt vs. bad debt would be that good debt is using debt as a form of leverage to increase your wealth where bad debt would be useless, expensive consumer credit used only to buy depreciable pointless things like cars, credit cards, shopping sprees, holidays etc.

I am going to have to agree with a lot of people here.. and say that a house to me is good debt, it is generally something that goes up in value, if you are in the right area. As long as you take care of your house though in general, and always trying to do little bits and pieces here and there, when you can afford it, your house value should always go up, even it's not by a lot.

Bad debt - general use cars, holidays, items that you generally don't need

 

Mortgage definitely is the "good debt" that you mentioned.

You would be surprised by how much you have paid at the end of your mortgage terms.It comes to almost double. So it is wise to  pay extra for your home loans if you can afford it.

Another type of "debt" I would recommend to get rid of is the credit card balance. This can really  empty your pockets fast as it  has a very high interest  rate attached to it. Plus the fact that you will keep adding to it without realizing  suring your shopping spree.