Student Loans: The Good, The Bad, and The Ugly
Are student loans good for your financial health? They are certainly in the news a lot and often not in a good way. But loans are an important financial tool for financing a college education and can be all three: Good, Bad, and Ugly.
Good Debt and Bad Debt
First of all I want to explain my view of debt. There is good debt and there is bad debt. Good debt is any debt which you take out to pay for an asset which has a good likelihood to appreciate in value. If you live in your home for 10 years or more, then it has a pretty good chance to appreciate in value so a mortgage is good debt. Bad debt is any debt you take out to pay for assets which depreciate in value or maybe have no value at all. Credit card debt used for clothing purchases is a perfect example of bad debt. What do you think used clothing is worth? As soon as you walk out of the store and put it on, its worth pretty much nothing. Many people borrow to pay for their cars and even though sometimes you have to get an auto loan because you don’t have $30,000 lying around, it is also bad debt. Cars depreciate incredibly fast when you leave the showroom and debt used to buy them is definitely bad debt.