Is there such a thing as “good” debt? My grandparents didn’t think so. They grew up during the Great Depression and they never took out loans for anything their entire lives. They paid cash for every vehicle they ever bought. They built their house in stages, living in their basement for a time so they wouldn’t have to take out a mortgage. I have to respectfully disagree with my grandparents, I don’t know that any debt is really great, but I think some is both necessary and not all that bad.
The first kind of debt that I recommend is a mortgage. The vast majority of us have to pay someone for our housing, whether we pay rent or a mortgage. And if you pay a mortgage you’re building up equity (albeit at a slower rate than it was once possible to do.) You can also use part of your mortgage interest payments as a deduction on your taxes. So overall, I’d call a mortgage good debt.
Car loans are a little harder to justify, but I live in Denver which isn’t known for stellar mass transit options, and my husband and I both have to get to work. So we have auto loans for our cars that is maybe not “good” debt, but it is pretty much necessary debt.
My husband went back to school a few years ago to get his Master’s Degree and we took out a student loan to pay for his schooling. I also think this is good debt because it allowed my husband to get a raise (he’s a teacher and he automatically gets more money for higher education), and the required payments are so low that it’s easy to pay additional principle on the loan.
So I guess I’d call debt "good" if it’s necessary, has a reasonable interest rate, and/or helps you to improve your life in some way. Bad debt is pretty much everything else, especially those nasty credit cards that definitely do not have a reasonable interest rate!
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