GOOD DEBT:

Any purchase with the potential for increasing in value over the long-term.

Student Loans:A student loan for a college education is a good debt because it will position you to earn more during your lifetime. However, you don’t want to take out
a student loan just because you aren’t sure what to do with your life.

Business Loans: Such loans are considered good debt if you’re likely to increase your net income by borrowing to expand your enterprise. For instance, one of the most powerful women in radio is Cathy Hughes, founder and chairwoman of Radio One in Lanham, Maryland. In 1979, she raised $1.5 million in seed capital from Chemical Bank and venture capitalists. The following year, she purchased her first radio station, WOL-AM. Today, Radio One, with $272 million in revenues and more than 50 radio stations nationwide, is the largest black-controlled broadcasting station in the United States.

Margin Investments: Another category of debt that may be good debt: borrowing
to buy certain investments, such as high-return stocks or bonds, on margin. But this is only true if you’ve analyzed the transaction carefully (and perhaps even consulted an impartial financial professional).

Home Mortgages: Home values have increased an average of 6.5% annually over the last 30 years. Plus, you get a tax advantage and can write off interest on an asset that’s appreciating in value. Buying an investment property—such as a multifamily home that will produce rental income and deductions—is also good debt, as is refinancing your home mortgage to get rid of an excessively high interest rate.

BAD DEBT:

Any purchase that goes down in value immediately after you buy it.

Auto loans: Four wheels often cost well into the five figures. Borrowing money for a car racks up sizeable interest, all in the name of buying something that decreases in value at a rapid rate once you drive it off the lot. Also, too many people make car purchases based on the image they want to portray rather than on what they can afford.

Credit/Charge Cards: Any card with an interest rate between 13.5% and 21.5% is a bad deal. Let’s say that every week for a year, you put $50 worth of groceries on a credit card with 18% interest. If you make the minimum monthly payment, it will take you a little more than 12 years to pay off your credit card bill.