GOOD DEBT VS. BAD DEBT

When and why should you borrow money? The answers lie at the core of whether a debt might be considered bad debt vs. good debt, and they may help you decide if you should take out a loan. If you’re looking for an installment loan, RISE offers online installment loans to applicants who might have trouble getting approved elsewhere.

Access to credit and strategically borrowing money can help many people achieve a higher quality of life.

 

The right loan could be the difference between getting a degree and starting a career or feeling stuck in a dead-end job. However, debt can also be dangerous and keeps some people from achieving their personal or financial goals.

 

What makes a debt a good debt vs bad debt? The answer varies depending on who you ask, but it could come down to why you’re borrowing money, how much you’re borrowing, and your cost to get a loan.

 

What is good debt?

Whether or not a debt can be considered a good debt or bad debt will depend on your individual financial situation, and you may want to talk with a financial planner before deciding whether to take on new debt. Generally, when people discuss good debts, they’re thinking of a loan that will eventually create more value than it costs. These good debts could include:

  • The money you borrow to invest in yourself or increase your earning potential, such as a student loan.
  • Loans to make necessary purchases for everyday life, like an auto loan or mortgage.
  • When you have enough cash, but you borrow money at a lower interest rate than you expect to earn on your savings or investments.

 

The specifics of a situation can also impact whether the debt is considered good or bad. For instance, taking out a large loan to buy a luxury car might be considered bad debt. However, a loan to buy a used vehicle so you can get to work might be considered good debt.

 

Mortgages are often considered good debts because you need to live somewhere and you’ll either be paying rent or a mortgage payment. Also, since your home may increase in value over time, you could make money in the long run.

 

What’s bad debt?

Bad debt is generally debt that’s taken on for unnecessary consumer purchases, excessive debts, and high-interest debt.

 

A bad debt could be credit card debt from shopping sprees, excessive or high-rate student loans when you could have attended a less-expensive school, and payday loans.

 

Can you transform a bad debt into a good debt?

While you can’t necessarily turn a bad debt into a good debt, you may be able to take advantage of lower-cost debt that can help you pay off your more expensive debts.

 

For instance, if you’re struggling with payday loans, taking out an installment loan with a lower interest rate, manageable payment schedule, and funds to use to pay off your payday loans could be a wise financial decision.

 

Your credit score and overall creditworthiness may limit your loan options, though. RISE, an online lender, can work with millions of Americans who may not qualify for a loan or line of credit from other financial instructions.

 

Learn more and find out if a RISE loan could be a good fit for you.