RISMedia, May 27 2011—(MCT)—Debt has a bad name, for good reason—too much of it helped sink the economy in the Great Recession. But there’s a good side to debt, too, and here are some sites to explain it.
• Good debt, bad debt: The Money 101 lessons at CNNMoney give examples of good and bad debt. In general, it says, “Good debt includes anything you need but can’t afford to pay for up front without wiping out cash reserves or liquidating all your investments. In cases where debt makes sense, only take loans for which you can afford the monthly payments.”
• Credit utilization: Your debt-to-credit ratio, or credit utilization, tells how much you have actually borrowed of the total credit available to you. As explained here at About.com, if you got a $1,000 credit limit on your card, and your balance is $300, your credit utilization is 30 percent. The lower that percentage, the better for your credit rating. In that regard, more credit is good—until you slip into actually using too much of it.
• This About.com page says more about the difference between good debt for expenditures “that will increase in value and can contribute to your overall financial health,” and bad debt for things that go away, such as vacations and food.
• Good, bad, ugly: Financial adviser Cindy Diccianni adds the category of “ugly” debt, which would include payday loans, pawn shop interest and other “fringe banking.”
• Education debt: A post at USNews.com describes the upside and down of student debt. Education is traditionally thought of as an area where it’s OK to take on debt. But some students get saddled with decades of debt, or with educations that don’t lead to top wages. It’s best to proceed with extreme caution.