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Good debt vs. bad debt

Last update: March 15, 2008 - 5:21 PM

GOOD DEBT VS. BAD DEBT

"Debt can be constructive," said Mathew Greenwald, the researcher who conducted the Securian study. "But it can also be destructive." Here's a brief guide:

GOOD DEBT

Mortgages: Historically, houses are appreciating assets and the interest on mortgage payments is tax-deductible. But given the current housing market, I'd say that only housing debt that doesn't stretch your pocketbook and leave you with negative equity is good debt if used wisely.

Education: College graduates earn much more than their high school diploma-earning peers over their working life. Student loan interest can be tax-deductible, too.

BAD DEBT

Car loans: Auto loans bridge the divide between good and bad debt; you can sell the car if you have to, but since cars are a depreciating asset, it's better to pay for it in cash.

Credit-card debt: Using credit to buy dinner is considered bad debt if you don't pay off credit balances at the end of the month. If you stop to think about it, would you want to pay for a single meal over several months?

Securian's debt survey results are at www.securian.com/Debt/F67497.pdf

Sources: Securian; Star Tribune

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