Good Debt...what are you?

It's nearly impossible to live debt-free, but why do we borrow money? Usually, it's because we don't have the money to purchase something we want or need. Acquiring some items through credit make sense, but a list of those that doesn't can easily fill the Library of Congress to the brim, and that is where most people get their debts out of hand.

Just what exactly is a good debt? Good debts are debts used for acquisitions or purchases that can increase your net worth over time or those that should boost your earning potential. It can also be viewed as long term investment. Perfect examples of good debt are:

Education. This can definitely increase your potential to earn. So go ahead and take that student loan and make yourself the best moneymachine in town.

Home. In the long run, owning a home is cost-effective than renting. But make sure that you stay in it. Do not buy until you can stay in it for the next few years, though.

Businesses. If managed properly, this can increase your net worth tenfolds the debt and cost of borrowing.

Vehicle. It makes sense to acquire a car on credit if you plan to keep on driving the car long after the loan payments have stopped. Just be sure to shop for the best deals. It is extremely painful to keep on paying for something that has retired to the junkyard.

So before you hand over that plastic cash to Mr. Salesman, ask yourself if it will significantly increase your net worth...or not.