|
 This survey originally ran in
the 5/21/03 DebtSmart
Email Newsletter.
To take the survey click here.
Is there such a thing as good debt or
bad debt?
 |
75%
of respondents said "Yes" |
|
15.5%
of respondents said "No" |
|
9.5%
of respondents said "Don't Know" |
"Bad Debts are unnecessarily
expensive."
--Anonymous
"Good debt in my opinion would
be considered student loans. Bad debt would be credit cards and
things like that."
--Anonymous
"It is good to have some debt as
it can establish your credit rating."
--Joan
"There is only what I can afford
to pay for & what I can't (debt). If you have no resources to
pay for an expense that is debt (bad). If you have resources to
cover an expenses the "debt" is good. Most people use
credit/loan "debt" & really have no idea how much the
expense can truly cost them...that makes the debt bad... so these
scales are not necessarily a true indicator of good or bad it
depends on the financial resources of individual. But generally my
approach is an exception to the general rule. Using a credit card
does not necessarily create a debt unless you carry a balance that
involves paying finances charges, then it becomes a bad debt,
instead of a good debt. Finance charges determine whether a debt is
good or bad. as well as how necessary is the expense, car, home? You
need more information to determine whether the debt is good or bad,
so I don't know. I will judge it for my situation. I am debt free
& paying no interest on my credit card & my trucking school
loan. I have no car or home. Good/bad debt is a personal
judgment."
--Don
"Debt is debt. However those
types of debt that are secured by specific collateral provide the
lender an opportunity to foreclose or perfect their security
interest in the collateral by taking possession of the property.
Unsecured debt can be considered bad debt because it is not
collateralized, the lender has nothing to repossess or foreclose.
Interest rates are generally much higher on unsecured debt unless
the borrower has an impeccable credit history and the lender bases
their decision on that history of ability to repay."
--Richard
"Because some debt in specific
areas offers (Mortgages which many don't consider debt but and
investment) is good debt. Actually hold a credit card, and a little
debt on that, but paying it on time and regularly might also be
considered a good debt, so that you can have an established credit
rating."
--Marie
"Debt is debt. It all depends on
your credit. If you pay on time it is good but if you pay late it is
bad. The only good thing to do is not get into debt. You will always
have a car payment insurance, and a mortgage."
--Jason
"Because to build credit you
need debt."
--Sue
"Good debt allows you to have an
investment like a home, a bad debt is one with a high interest
rate."
--Terry
"Some debt can reduce income
taxes."
--Anonymous
"Any time you owe money it is
bad."
--Anonymous
"Good debt is something that
appreciates over time, such as a home or property. Also good debt is
were your return on the debt is greater than the actual debt, like
student loans."
--Anonymous
"Depends. Obviously, no debt is
the best, but if you need to borrow to buy a home or go to school
(an investment) and that is the only way to do these things, than I
would not call it bad."
--Anonymous
"I think any debt is foreseen as
bad debt because once you owe money to one creditor the rest are
willing to extend credit to you leading to an even bigger
debt."
--Stephanie
"Good debt establishes credit.
In these days, you need a credit card for securing a rental car.
Utility companies and others need to see credit history when you
apply for these services, otherwise, you may be asked to provide a
sizable down payment."
--Anonymous
"Good debt is a mortgage,
especially if you under age 55, bad debt is credit cards."
--Anonymous
"I think that good debt is when
you own a house and are paying a mortgage, this helps increase your
credit rating. Bad debt is when you have tons of credit card debt
piling up from shopping sprees because you were bored or whatever
the case may be."
--Danielle
"Too much of a good thing, but i
also think that if you are paying your bills on time, then you
shouldn't be judged against for 'having too much', in whose
opinion?"
--Jodi
"Some debt COULD be considered
"good" if it's debt that truly advances an individual --
something that is manageable can enrich a person's life without
being a burden (bad debt)."
--Anonymous
"Debt to buy a house is good.
You can control a lot of house for a little down payment and
financing."
--Anonymous
"Good debt is debt that is used
to build up your credit history. If handled correctly, it enables
you to purchase bigger items like a mortgage or a car. The trick is
to not accumulate too much."
--Karen
"There is definitely bad
debt--credit card debt is nothing but. However, I can't go as far as
to say there is such a thing as good debt. Tolerable debt, maybe.
For instance, I went into debt to get my college degree which has
given much greater earning power than if I didn't have the extra
education. But I'm not happy about taking on the debt, and I treated
it exactly as I did the credit card debt I used to have -- I worked
as hard as I could to pay it off as quickly as possible. Now I have
no debt -- good, bad or otherwise!"
--Anonymous
"Good debt is a mortgage because
it is an asset that USUALLY will appreciate in value and you will
get a tax break on the interest. In my opinion, all other debt is
bad!"
--Maggie
"Sometimes debt can be used to
leverage a better opportunity."
--Anonymous
"Good debt is for ONLY
"NEED" Bad debt is for ONLY "WANT""
--Anonymous
"Debt that is incurred to
acquire income producing assets is good."
--Luanne
"If you're living on credit, i.e.
charging groceries, then there's a real problem. A mortgage is
sensible in that it offers a tax shelter and the property is an
investment. Few people have the cash to go out and buy a home
outright and it's far better to take out a mortgage than to pay rent
which yields no benefits beyond the immediate. Also, just because a
mortgage can be paid off over the course of 15 or 30 years doesn't
mean that it has to take that long. The tax benefits wane after the
first few years anyway, so just pay it off in 7-10 years if
possible."
--Anonymous
"Debt like houses are good
investments. You also need to build up credit with some debt."
--Anonymous
"Debt is inherently bad."
--Anonymous
"Depends what the debt is
for."
--Marion
"Some improve your score while
others reduce it. A lot of times it's the companies you're
using."
--Jenni
"My first instinct is to say
no...BUT. The only "good" debt I can think of could be a
home mortgage. Good because of the tax savings. But even THAT would
depend on your income level, etc. I would have to conclude that for
ME there is NO good debt!"
--Pam
"I think all debt is bad.
Sometimes it is unavoidable and even worth it (think college loans,
mortgage), but it is never "good" to have a debt hanging
over your head."
--Anonymous
"Good debt - shows payment
history and spending habits (risky behaviors) bad debt - shows lack
of judgment, poor choices and history of collections."
--Anonymous
"Some debt, such as college
loans and mortgages are "good debt". With a college loan
you will eventually increase your income significantly."
--Anonymous
"For us an asset that will grow
in value is a good debt. example- mortgage."
--Michelle
"There probably is in some wild
scheme, such as if you have outstanding debt you may qualify for
some benefit. This is true in some states for receiving medical
assistance."
--Jon
"Good debt would be limited debt
(house note, car note) that allow major purchases over time. Bad
debt is short term (credit cards, vacation debt) for immediate
satisfaction."
--Anonymous
"I have heard that having a
mortgage is good debt, but I think any debt is probably not a good
thing."
--Anonymous
"It's not Biblically
sanctioned."
--Anonymous
"Some things are almost
impossible for young people to save up for in a short period of
time, such as buying a house outright."
--Anonymous
"Some debt like house mortgage
is good, you get tax money back and you establish yourself as
reputable with creditors."
--Anonymous
"Mortgages are a form of good
debt, since you will own property long-term and a percentage of the
mortgage is tax-deductible."
--Robert
"Some debt will ultimately
improve your financial situation while other debt will keep it from
improving."
--Gretchen
We asked: Please judge the following debts as being
good or bad based on the following 1-to-5 scale:
1-very bad debt, 2-bad debt, 3-not good or bad, 4-good
debt, 5-very good debt. The results were:
Credit Card Debt
|
48.81%
of respondents said "1" |
|
28.57%
of respondents said "2" |
|
17.86%
of respondents said "3" |
|
2.38%
of respondents said "4" |
|
2.38%
of respondents said "5" |
|
0%
of respondents said "Don't Know" |
Car loan
|
7.14%
of respondents said "1" |
|
29.76%
of respondents said "2" |
|
40.48%
of respondents said "3" |
|
16.67%
of respondents said "4" |
|
4.76%
of respondents said "5" |
|
1.19%
of respondents said "Don't Know" |
Car lease
|
60.71%
of respondents said "1" |
|
17.86%
of respondents said "2" |
|
11.9%
of respondents said "3" |
|
7.14%
of respondents said "4" |
|
0%
of respondents said "5" |
|
2.38%
of respondents said "Don't Know" |
Home mortgage
|
3.57%
of respondents said "1" |
|
5.95%
of respondents said "2" |
|
13.1%
of respondents said "3" |
|
34.52%
of respondents said "4" |
|
41.67%
of respondents said "5" |
|
1.19%
of respondents said "Don't Know" |
Home equity loan
|
22.62%
of respondents said "1" |
|
30.95%
of respondents said "2" |
|
19.05%
of respondents said "3" |
|
19.05%
of respondents said "4" |
|
4.76%
of respondents said "5" |
|
3.57%
of respondents said "Don't Know" |
Investing on margin
|
33.33%
of respondents said "1" |
|
10.71%
of respondents said "2" |
|
16.67%
of respondents said "3" |
|
4.76%
of respondents said "4" |
|
3.57%
of respondents said "5" |
|
30.95%
of respondents said "Don't Know" |
College student loans
|
5.95%
of respondents said "1" |
|
11.9%
of respondents said "2" |
|
30.95%
of respondents said "3" |
|
36.9%
of respondents said "4" |
|
10.71%
of respondents said "5" |
|
3.57%
of respondents said "Don't Know" |
Charging college related costs with a
credit card
|
60.71%
of respondents said "1" |
|
26.19%
of respondents said "2" |
|
7.14%
of respondents said "3" |
|
2.38%
of respondents said "4" |
|
2.38%
of respondents said "5" |
|
1.19%
of respondents said "Don't Know" |
Borrowing from a bank to start a
business
|
2.38%
of respondents said "1" |
|
8.33%
of respondents said "2" |
|
40.48%
of respondents said "3" |
|
35.71%
of respondents said "4" |
|
8.33%
of respondents said "5" |
|
4.76%
of respondents said "Don't Know" |
Borrowing from friends to start a
business
|
55.95%
of respondents said "1" |
|
19.05%
of respondents said "2" |
|
14.29%
of respondents said "3" |
|
4.76%
of respondents said "4" |
|
4.76%
of respondents said "5" |
|
1.19%
of respondents said "Don't Know" |
Borrowing from credit cards to start a
business
|
66.67%
of respondents said "1" |
|
21.43%
of respondents said "2" |
|
9.52%
of respondents said "3" |
|
0%
of respondents said "4" |
|
1.19%
of respondents said "5" |
|
1.19%
of respondents said "Don't Know" |
Cash advance to gamble at a casino
|
92.86%
of respondents said "1" |
|
3.57%
of respondents said "2" |
|
1.19%
of respondents said "3" |
|
0%
of respondents said "4" |
|
2.38%
of respondents said "5" |
|
0%
of respondents said "Don't Know" |
Department store credit card debt
|
55.95%
of respondents said "1" |
|
25%
of respondents said "2" |
|
13.1%
of respondents said "3" |
|
3.57%
of respondents said "4" |
|
1.19%
of respondents said "5" |
|
1.19%
of respondents said "Don't Know" |
Buying groceries on credit
|
63.1%
of respondents said "1" |
|
17.86%
of respondents said "2" |
|
13.1%
of respondents said "3" |
|
2.38%
of respondents said "4" |
|
1.19%
of respondents said "5" |
|
2.38%
of respondents said "Don't Know" |
What are some criteria you use to judge
whether a debt is good or bad?
"If the debt costs a lot and if
the debt could pay off in the future."
--Anonymous
"Student Loans are going to
benefit you in the long run- they are good debt, and the rates now
are very low too. Everyone needs somewhere to live, so I think
mortgages are an essential also."
--Anonymous
"What the interest rate is, how
long it will take to pay off, whether it can be deducted from your
taxes."
--Joan
"Judging whether I have cash,
savings, paycheck, collateral to cover expenses... I use my credit
card for most of my expenses: grocery, phone, transportation, but I
pay the card balance at the end of the month, same 4 department
store cards. It makes my payments orderly & I see what I
spend."
--Don
"Credit Card debt is usually
unsecured debt. And while the creditor can litigate and obtain a
judgment, in the State of Florida they must use the judicial system
for debt recovery. Interest rates are usually reduced to 10%.
Student Loan debt is usually guaranteed by the Federal Government
and the government has levying powers against wages, bank accounts
and Federal Tax Returns. Using credit cards to purchase groceries or
items of every day use are like taking out a loan from a lending
institution to purchase these items. Who in good conscience would
want to pay 24.9% interest on a loaf of bread? Taking cash advances
to gamble is likened to burning the cash. The same rule applies
about taking out a loan to gamble. If you lose $1,000.00 and you had
to pay 24.9% interest on top, you'd have to win at least $1,250.00
to pay back the cash advance (calculated on a one year period)
Where's the fun in that?"
--Richard
"The interest rate on a card.
The investment value of the debt. The positive's and negatives in
each situation, and how it affects/effects my overall credit rating
and cash flow so I can subsist on what I have as income rather than
depending on credit cards to supplement the income."
--Marie
"Do I end up paying more for
something than it could ever be worth? (House, car) Do I give a
company free money via interest and get no benefit from it? I always
thought a mortgage came under the 'good debt' category until I got
one and saw what a bad deal it is. Now I am convinced that all debt
is bad. I still have my mortgage payments but I pay off everything
else on time to avoid interest charges. I pay extra on my mortgage
each month to try and reduce the overall amount I will pay but I
still am paying much more for my home than it will ever be worth.
That's the definition of a bad debt to me."
--Anonymous
"If you use a credit card for
food or other consumable goods then you are crazy. If possible use
CASH or a check. Be sure to keep your receipts."
--Jason
"Whether or not it makes sense
or is a necessary debt."
--Sue
"Whether the interest is
tax-deductible; whether the credit card charges a low interest and
has good reward programs."
--Anonymous
"Return on investment."
--Anonymous
"Biblical guidelines."
--Anonymous
"Accruing debt for daily living
expenditures is hugely bad."
--Anonymous
"Are you investing in the future
(student loans or home ownership), are you taking care of an
unexpected emergency (root canal or car repairs), will you be able
to pay it back within a reasonable amount of time, without having to
pay too much interest?"
--Anonymous
"If credit cards are used to pay
day to day living expenses then you are way over extended and need
to take a look at your finances. Today people are so embarrassed to
talk about finances but I think if more people talked about it then
perhaps we would realize that we are not alone in our situations and
perhaps we could use one another's experiences as a learning
experience."
--Stephanie
"The interest rate and whether
or not it is used to purchase something that is absolutely necessary
or beneficial versus something that is unnecessary and just
desired."
--Anonymous
"Mortgage and equity loan debt
is good because you build equity in your house and can deduct
interest on taxes. How good this is depends on income and tax rate.
Credit card debt is usually bad. It depends on interest rate, amount
of debt, over how many cards etc. Personally, for the income my
husband and I have I think $10,000 or under on no more than 2 cards
would be ok. Loans to start a business or for college are ok. I
don't know about using a credit card for either it depends on how
much you are putting on a card, how often, etc. I have read of
people starting successful businesses using credit cards and getting
$100,000, but I am skeptical. With that and college you have to
evaluate when the business will make money or your earning potential
with your degree. Now since the economy has been bad I have been
reading about people getting MBA and getting psychology advanced
degrees. I guess they couldn't find good enough jobs so they
continued on with college. Borrowing money for an education is
usually good."
--Anonymous
"Determining the purpose of the
debt. Again needing to establish a good credit history. It's okay to
have debt, but bad if you don't pay it off if you can, or only
paying the minimum balance due."
--Anonymous
"Whether the debt is worthwhile,
like a mortgage is good because you will most likely make money on
your home when you sell, my house value has doubled in 9 years.
Credit card debt to buy things, especially things that aren't vital
to living, i.e. food, utilities, is bad unless you get a 0% interest
rate for 12 months or longer. Home equity debt can be good if you
are doing much to improve your house, that the cost will be exceeded
by the extra value."
--Anonymous
"If it helps your credit report
and you aren't struggling to pay off all this money you
"borrowed" then I believe it is a good debt. I think there
is a fine line between good and bad debt though. Sometimes things
get a little fuzzy."
--Danielle
"Need vs. want, gambling at a
casino isn't exactly the wisest risk to take with your money."
--Jodi
"Can the debt be repaid
reasonably? Is the debt incurred due to perishables or things that
will last? Will the debt result in advancement/positive
results?"
--Anonymous
"Will the debt produce passive
income?"
--Anonymous
"Is this an investment or just a
want? If the debt is going to provide a greater benefit in the long
run then go ahead with it. It wouldn't make much sense to settle for
flipping burgers for minimum wage if you can go to college. Even if
you have to take out a loan to pay the tuition."
--Anonymous
"Don't use debt on perishable
items."
--Anonymous
"Who's benefiting from the
debt."
--Marion
"Item purchased, company
borrowed from."
--Jenni
"House debt is good, because you
will live there. Credit Card debt is bad only if the charge cards
are full and it takes you more than 6 months to pay them off. Dept
Store credit cards are usually at a high rate. Borrowing from
friends & family is risky."
--Anonymous
"Credit cards are bad debts. A
house gains equity, a college loan projects a return (better
job)."
--Lisa
"How much will it cost me (time,
money, worry, etc.) in the LONG run?"
--Pam
"Whether or not the money
borrowed will create additional funds that will pay the interest
that the debt costs."
--Gaylen
"If the debt is not going to be
paid off immediately and it is for an item that will be gone before
the debt is paid, it is a very bad debt. (Charging food on a credit
card that isn't paid off each month- you can't get enough frequent
flier miles to make up for the finance charges and interest you will
owe.)"
--Anonymous
"Payments on time and more than
the minimum, not pushing credit line limits, where the debt is
incurred at (casino (bad-poor planning/lack of control), home loan
(investment)...)"
--Anonymous
"I determine what you will get
out of the debt in the long run. Such as with a mortgage you will
own your own house and with college loans you will obtain a degree
and a higher paying job."
--Anonymous
"1. If debt is tax deductible.
2. If benefits outweigh the costs (education you gain more than you
lose. 3. If debt can qualify you for beneficial programs. 4.
Interest rate."
--Jon
"I think credit card debt is bad
but there are exceptions. You could get a 0% rate for a year that
would not be bad, as long as it is paid off by then. I also use my
credit card to buy groceries, but pay it off each month and get $$$
rewards on the card. I have had the card about 6 months, i paid zero
in interest and have over $200 in cash rewards that i get at the end
of one year."
--John
"If the thing I'm going into
debt to have is something I won't have before the debt is paid off,
it's a bad debt."
--Anonymous
"Whether or not the
"loan" will be paid off ASAP, whether or not the
"loan" will be used for a decent purpose (i.e., NOT
gambling it away)."
--Anonymous
"If you can pay it off quickly
it is OK, if the rate is very low (5% or less) it can be OK as long
as you don't go overboard. If it is an expense that will better your
life in the long run rather than short term it can be OK (like
student loans)."
--Anonymous
"If you will gain something
long-term from it, like property or education, is good. If you will
simply be in hock with nothing to show for it except high interest
costs, is bad."
--Robert
"Debt such as mortgage or for a
business where the debt is paying for something that can increase in
value is good because it becomes an investment. Any debt for
consumables or things that lose value quickly I consider bad
debts."
--Gretchen
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--End--
| 
