There are many different opinions out there about whether or not there is such a thing as good debt. Many financial advisers believe that no debt is good debt. You should pay cash for everything! Other, more liberal financial advisers will argue that an affordable home or vehicle loan is an acceptable form of debt. If paid on time, these loans will actually help your credit standing.

I lean more towards the liberal side on this topic. I feel there are certain forms of debt that are acceptable as long as they are managed correctly. Let me give you a few examples…

• An Affordable Home: I support making an additional mortgage payment annually, but that’s it! Rather than focusing on paying off my mortgage, I would rather put that money in an investment that will get a much higher return over time than I would get from the equity in my home.

• Real Estate/Rental Property Investment: Real estate has proven time and time again to be a sound investment if researched properly.

• Education: The earning power you attain with a college education will more than compensate for the student loans you acquired along the way.

• An Affordable Vehicle: I realize this is typically bad debt as it depreciates in value, but many of us don’t have the cash necessary to purchase a safe, reliable vehicle. If a loan is required to purchase a vehicle that will get me where I need to go without leaving me stranded on the side of the road, then so be it!

As for bad debt, a good rule of thumb is if you consume it, feed it, or it loses value over time, its bad debt! These are all things you should be purchasing with cash. Putting these expenses on a credit card adds up quickly, and before you know it, you don’t have the funds in your checking account to cover the bill at the end of the month. This leftover balance now rolls over into the next month’s statement and interest is applied. So begins the downward spiral!

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