You Don't Have to Feel Guilty for Incurring These 7 Examples of ‘Good Debt’

Do you believe that all debt is bad? While many types of debt represent an undeniable drain on your financial resources, some debt is actually considered good.

In most cases, good debt lands in a positive category because it can lead to a greater benefit.

The key to good debt is managing it in a way that doesn’t backfire on your financial situation. If you aren’t managing the debt responsibly, then the right money move is to pay it off whether or not it’s a “good” debt.

Here are some examples of good debt that you don’t necessarily have to feel guilty about incurring.

Most of us cannot afford to purchase a home without taking on a mortgage. Although a home loan comes with some risks, locking in a relatively low interest rate and a set housing cost for the long term can be a good thing for your financial situation.

When taking on a mortgage, try to borrow only what you can comfortably afford. Many experts recommend keeping housing costs at no more than 28% of your gross monthly income.

A larger mortgage payment might put too much pressure on your overall financial situation.

Many consider student loan debt to be good debt. But the reality is that student loan debt is only good for your finances if you use the money to earn a degree that sets you up for a good career.

As you navigate college, it’s generally a good idea to avoid taking on too much student loan debt if you don’t think it will pay off in terms of earning power and career satisfaction.

Before committing to student loans, evaluate your degree options. You might decide to pursue a degree that offers an attractive return on your investment.

Getting a small business off the ground often involves taking on some level of debt. If you can use the funds to grow a successful small business, then the debt might be good.

But if you aren’t able to convert the debt into a lucrative business, the outstanding balance can drag down your finances.

Most Americans need a vehicle to get to work. If you cannot afford to purchase a vehicle in cash, taking on an auto loan might be necessary.

As you explore your auto options, seek out an affordable vehicle. While it’s tempting to finance a nicer ride, opting for a reliable used car that you can pay off quickly might better serve your financial situation.

If you have significant home equity, you might be able to tap into some extra cash through a home equity loan or line of credit.

There is a risk to this approach. Your home is used to secure a loan or line of credit. That means you risk losing the home if you don’t keep up with the payments.

However, home equity debt can be a good way to finance major purchases. You can even use this approach to pay off higher-interest debt.

If you are using a home equity loan to consolidate other debts, avoid taking on new debts after the consolidation. Otherwise, you could end up with more payments than you can handle.

Traditional credit card debt is the most notorious type of bad debt. Interest rates on credit cards are often quite high.

However, if you use your credit card to earn points or cash back and pay off the balance in full each month, turning to plastic can be a positive for your financial situation.

If you have to take on debt, an interest-free loan from a family member or friend might be the best type of debt available.

The catch is that you likely need to prioritize paying back the funds to avoid putting a strain on the relationship.

Although some debts are better than others, even good debt can make your financial situation more difficult. That’s especially true if you don’t manage good debt responsibly.

For example, borrowing more than you should to purchase a home or to complete a degree can backfire in the form of budget pressure down the line.

If you want to eliminate all debts — good and bad, from your life — check out these clever debt payoff strategies.