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bethdig says: It's been really great seeing everyone's responses here, and how different everyone's views are on what are "good" and "bad" debts to them

joelcorley replies: Something everyone should bear in mind is that there's no such thing as "good" debt or "bad" debt. Debt is simply measured in terms of cost. What does it cost you to have that debt.

I concur. There can be good and bad reasons to incur debt, but once the debt is in place it is neither good nor bad. It is just an obligation with terms and conditions attached.

Some people say a mortgage or a student loan is "good debt". I believe this is sloppy thinking. The most commonly cited reasons for taking out a mortgage or student loans are usually regarded as good reasons, but people take mortgages and student loans for bad reasons, too.

Most people would concede that getting a mortgage to buy a house is a good reaon. Some would quibble that it's a bad reason if you buy more house than you can afford. Many regulars here would say that paying off credit card debt is a bad reason to get a cash-out mortgage. Joel and I (and possibly others) would say that regardless of the reason, once that mortgage is in place it's neither good nor bad. It's just a debt with defined characteristics that should be managed in the context of your overall financial picture.

Similary, many people would agree that getting an education that allows you to earn a good living is a good reason to take out student loans. Some would look further and say that students who have a party-heavy lifestyle frequently borrow more than they should to get that education. Suppose there are two students who pursue the same course of study, have similar incomes and support from their families, and are offered identical financial aid packages. If one student graduates with $20K in student loans and the other graduates with $50K in student loans, many regulars here would say that the second student managed his money poorly. The decisions made by the second student were probably inferior to the decisions made by the first student; but the first student's debt isn't "good", and the second student's debt isn't "bad". The debt is just debt that the new graduates need to deal with in their financial lives.


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