Despite what you may have heard not all debt is bad, there are times when debt can actually be very helpful. The key is that you need to able to tell the difference between good debt and bad debt. This will allow you to know when it is a good idea to borrow money and when you should probably look into other options.

The difference between good debt and bad debt is largely down to what you are using the debt for. Good debt is generally anything that will help your wealth to grow. This normally means things that will increase in value but there are exceptions. The most common example of this is a mortgage since your house is something that is likely to increase in value over time. However you can also consider things like student loans to be good debt since they will increase your future earning power which will lead to increase in wealth.

Bad debt on the other hand is debt where you are borrowing money to buy things that are unlikely to retain their value. The classic example of this is credit card debt. The vast majority of what we use our credit cards to buy is things that will quickly lose value. This is especially true when you purchase consumables like food. It is never a good idea to use your credit card to go out to dinner for example, there is really no reason that you should be borrowing money for this.

There are also times when good debt can turn bad so you need to make sure that you are aware of this. The real danger is that you will take on more debt than you can manage. At that point it is bad debt even if you have used the money as an investment since you are going to find it to be very difficult to manage your debt. There is also the risk that the investment that you made will decrease in value, this can and does happen even with things like real estate. This is why you need to make sure that you are using debt in the proper way even if you are using it to buy things that will increase in value.

One other important consideration when you are looking at good or bad debt is the interest rate that is being charged. If you make an investment that is increasing in value at a rate of ten percent a year but you are paying twenty percent interest on it you can hardly call that good debt. This is why credit card debt is so bad, even if you do use it to make a purchase that would be considered good debt the very high interest rates that you would have to pay are pretty much going to turn it into bad debt.