Regularly I read articles on personal finances that talk about what is considered good debt and bad debt. However, several of the items I consistently see listed as "good debt" I do not agree with wholeheartedly.

There are few common types of debt pushed as good that I believe fall into a grey area and can be either good or bad depending on how they are used of if they are truly needed.

Grey Area Debt

Student Debt

Investing in your education and your future makes sense, right? Plus, the interest rate on student loans is stupid cheap compared to any other type of debt.

However, with the price of a four year degree averaging near six figures in the states - is it financially smart to graduate with what is the equivalent to a mortgage payment?

This answer can go both ways actually.

Yes - if you are getting a degree in a specialized program with a clear direct path to a job and the salary scale of that job justifies taking on that much debt.

Example - My cousin got a degree in Supply Chain Management. I had never even heard of such a program, but it was specialized for a specific group of jobs and there was high demand for them. She had a job offer before she even began her senior year of college!

No - if you are getting a generalized degree (i.e, business administration, communications, etc.) Hands down I know more people that do not have specialized degrees working jobs that have no relation to their degree than I know people working a job related to their degree. Heck, I am one of them (thank goodness I only financed my last two years of school)

In that case, you are much better off going to a trade school for a lot less money or even looking into careers that have apprenticeships where you get on the job learning.

Auto Loans

It's often argued that you need transportation in order to commute to a job, provide certain services, etc. So being that you are using debt to purchase something that helps you earn money (get to work, drive uber, deliver pizzas, etc) most financial advice articles dump it in the good debt bucket.

But, is it really?

There are very few circumstances where you should take out a loan for a car and the main one is if you only have enough cash for a down payment on a used car.

Most other scenarios the better financial move is to purchase a used car outright. Yes, I know you want that shiny new car, but instead of putting 5k down on that 30k ride why not find a practical used car for that 5k.

Remember, in the end an automobile is a liability. It goes down in value from the moment you purchase it and it also costs money to maintain.

So my question is - how can taking debt out for something with those traits be considered good? In my book it cannot.

Plus, not having a car payment is such an awesome feeling. I have not had one in over 10 years. Plus, that is money (and borrowing capacity) that I can use on investments and real estate.

Conclusion

Not all debt is created equal. Sometimes it depends on how you use it and if you really need it.

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Regards,

Thanks for the pics pixabay
Disclaimer: All info in this post is my opinion and for educational purpose only.