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Is There Such a Thing As Good Debt?

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Alot of the time, even I think debt is all bad and it should be avoided at all costs. But, there are some types of good debt out there.

A few examples of good debt are:

  • Mortgage – the debt incurrered when purchasing a home is usually paid back over may years. You also have something of value that could pay off the debt immediately if needed.
  • Student Loans – you may regret ever taking out a student loan while in college, but the higher earning potential that you have should make the loans worth their trouble. The rates for Student Loans are also much lower than traditional personal loans.

With any loan that you must make, the best thing to do is to only take out a loan for as much as you need. Put down as high of a down-payment as you possibly can.

Technorati Tags: mortgage, student+loans, good+debt, bad+debt

My Debt to Income Ratio

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When you look at my monthly payments towards debt compared to my income (debt-to-income ratio), you will see why my debt is very bad.

I found his handy calculator to use:

Debt to Income Calculator

My monthly debt payments eat up 54% of my monthly gross income (pre-tax).

A “healthy” ratio is under 36%. If you are over 50% it is recommended that you get professional help to reduce your debt because you are in trouble.

And, as I will discuss later, my income just recently increased so I was dealing with this debt with even less income. That is why I will often give tips on how to live frugal because I have been living frugally for quite a while just to make sure bills were getting paid.

Technorati Tags: debt, debt+income