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Can Debt Help You Accomplish Your Financial Goals?

Not all debt is bad. Knowing how to properly manage good debt can help you build your wealth.

Last Updated: 3/23/2022
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Contrary to what many people think, there’s such a thing as good debt. There are certain purchases and financial goals that offer good return of investment (ROI), such as mortgages, student loans and auto loans. You can even improve your credit profile if you manage your debt responsibly and make payments on time. However, good debt may not be for everyone, especially if making payments is a challenge. Learn more about what good debt entails and how to use it to your advantage.

What Is a Good Debt?

While many Americans struggle with debt, there are certain types of debt that can be considered good to have. Generally, good debt helps generate income, build net worth and achieve financial goals. Understanding how it differs from other types of debt can help you make better financial decisions.

Where Debt Can Be Advantageous

Borrowing money is sometimes necessary. If it helps increase your net worth or can be considered an investment with future value, it can be categorized as good debt. These include mortgage, auto loans, student loans and small business loans.

While accruing debt may be worth it since you are investing in your future, it may not be the best option for everyone. It’s important to consider your needs and circumstances.

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    Financing a house

    For many, a home is one of the biggest investments they will ever make. A mortgage can help you purchase a house and your monthly mortgage payments can help you build equity.

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    Supporting your education

    Student loans are considered good debt. Higher education can give you access to more career opportunities and increase your potential income. Typically, student loans also have lower interest rates that may be tax-deductible.

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    Purchasing a vehicle

    If a car is essential for your everyday life, purchasing one may be a good idea. However, vehicles can be expensive. That is where an auto loan can help.

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    Starting a business

    A good business idea can help you succeed financially. However, not all aspiring entrepreneurs have the financial capability to launch it into the market. Borrowing money can help you start your journey as a business owner. That said, launching a business can also be considered risky.

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    Building wealth

    Investing wisely in assets that increase in value can help you build your wealth. This happens when the income and capital growth you incur from your investment can help pay off the debt and exceed the cost of servicing said debt.

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    Consolidating huge debts

    Multiple debts can cost you more due to interests and fees. You can choose to pay off inefficient debts such as personal loans and credit card balances. For example, you can increase your mortgage so that loan repayments stay the same and the extra money can pay other debts.

An illustration of good debt and bad.

Good Debt vs. Bad Debt: Examining the Differences

Knowing how to differentiate between good and bad debt can help you make better financial decisions. If the debt shows growth potential, is an investment or the monthly payments are worth it, the loan is considered good debt.

On the other hand, loans for low-value purchases and unnecessary items are categorized as bad debt. If the loan provides you with short-term relief but is costing more over time, it's bad debt.

What’s Considered “Good” Debt?
What’s Considered “Bad” Debt?

When your debt generates income and can increase your net worth over time. This can help improve your financial standing.

If it’s used for low-value purchases that depreciate their value quickly or don’t lead to ROI in the long-run.

Financing something that helps grow your skill set, increases your income potential or gains profit.

High-interest rate purchases you struggle to pay back.

Helps you accomplish a larger financial plan. It’s considered an investment because it leads to valuable returns.

When it hurts your credit score. Taking on a huge debt you aren’t capable of paying back can have a negative impact on your credit.

Examples of ”Good” and ”Bad” Debts

Knowing what types of debt are good and which are bad can help you protect your financial health. The following are some common examples of good and bad debt to help you in differentiating them.


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GOOD DEBT EXAMPLES
  • Mortgage: Purchasing a home can be considered an investment for the future of your family. A home gives you a continuous place to live and will also increase your net worth over time.
  • Student loan: Education is considered an investment. Obtaining a degree can lead to better employment and career opportunities, which increases your earning potential.
  • Car loan: While the value of a vehicle depreciates over time, getting a loan to finance a car can be considered good debt in certain circumstances. That is especially true if a vehicle is necessary to your everyday life and can bring new opportunities.
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BAD DEBT EXAMPLES
  • High-interest credit cards: Using credit cards can help improve your credit score. However, it can also hurt your credit history. Credit card debt is considered bad debt because of high interest rates that would cost you more money over time.
  • Payday loans: Payday loans and cash advance loans can provide short-term relief. However, they are considered bad debt. That is because of high interest rates. You also incur processing fees if you fail to pay on time.
  • Debt for consumables: Certain items, such as furniture and clothing, are not considered investments. Getting a loan for such consumables may lead to bad debt.

An illustration image of a man considering of taking a debt.

Further Exploring Types of Good Debt

Choosing good debt can help you manage your finances more effectively. It can also leverage your wealth since it helps you purchase things that can improve your financial health over time. That said, it's important to understand taking on debt comes with potential risks. Depending on your debt tolerance, even good debt may not be for you. Make sure you understand the terms of a loan before deciding to borrow money.

Buying a Home

Most, if not all, Americans dream of owning a home. Aside from having a safe place for you and your family to live in, owning a home builds equity. However, purchasing one can be expensive. That’s why many consider taking out a home loan. According to the Federal Reserve Bank of New York, mortgages contribute to 70% of household debt in the U.S.

Take time to understand how you can best use a mortgage, what your limit should be and how much you can afford.

Getting a Mortgage

During the last quarter of 2021, the average sales price of homes sold in the country was $477,900. That’s 18.32% higher than the average cost of $403,900 in the last quarter of 2020. Meanwhile, the 2020 year-end average saw a 5.02% increase from the average price recorded in 2019.

Let’s say you bought a $384,600 home in 2019 using a $334,600 mortgage with 3.5% interest rate and $50,000 down payment. A 20-year fixed loan term would cost $1,941 monthly, which covers the principal amount and interest. Throughout the next few years, as detailed below, your home loan amount decreases while your equity increases.

Year
Annual Interest Rate
Interest Paid
Ending Balance
Home Price
Home Price Growth (%)
Home Price Growth

Year 1 (2019)

NA

NA

NA

$384,600

NA

NA

Year 2 (2020)

3.50%

$11,523.49

$322,836.95

$403,900

5.02%

$19,300

Year 3 (2021)

3.50%

$11,105.11

$310,655.52

$477,900

18.32%

$74,000

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MAXIMIZING YOUR MORTGAGE

Taking out a mortgage to finance your home can be advantageous as long as you know how to maximize the value of your loan.

  • Evaluate your finances. Before getting a mortgage, make sure you can afford your monthly payment. Come up with a budget and determine how much of a down payment you can afford. Then, consider your monthly income. Generally, your mortgage payment should be 28% or less of your total monthly gross income.
  • Pay on time. Your mortgage comes with interest. That’s why you need to pay on time. Depending on the terms and conditions of your loan, you may incur fines for late payments. Additionally, failure to pay can also affect your credit score.
  • Choose the right loan. Shop around and compare lenders. Aim to get at least three mortgage quotes. Make sure you understand the interest rates and different fees. You can also use a mortgage payment calculator to get an idea as to how much your monthly payments would cost.

Pursuing an Education

Generally, obtaining your college degree can help increase your earning potential. That’s because you’re qualified for higher earning professions.According to the Bureau of Labor Statistics, the median weekly earnings for people with a high school diploma is $746. In comparison, having a bachelor’s degree can increase that to $1,248.

However, pursuing a higher education degree may not be affordable for everyone. That’s where a student loan can be helpful. It may also come with an opportunity cost — what you might sacrifice from doing one opportunity instead of another. For example, taking out student loans and acquiring debt versus working full time and increasing your savings.

Although student loans are good debt, you should also be aware of the risks. While there are student loans with low-interest rates and tax-deductible interest, inability to pay off the loan within the terms could be detrimental.

Higher Education: Benefits and Opportunity Costs

Before you decide to obtain a student loan, it's important to understand the advantages and risks. Learn more about some of the potential benefits and opportunity costs of getting higher education.


POTENTIAL BENEFITS
  • Higher income: Individuals with a higher educational degree typically tend to earn a higher income. For instance, the 2019 median weekly earnings are as follows:
    • Less than high school diploma: $592
    • High school diploma: $746
    • Bachelor’s degree: $1,248
    • Master’s degree: $1,497
    • Doctoral degree: $1,883
  • Employment: The unemployment rate is lower as education achievement gets higher. On average, the unemployment rate for high school graduates in January 2022 is 4.6%. Meanwhile, the unemployment rate for those who have a bachelor’s or higher degree is 2.3%.
  • Financial stability: An increase in career opportunities and higher earning potential can help ensure a more financially stable future.
OPPORTUNITY COSTS
  • Costs a lot of money: While getting a higher educational degree can lead to an increase in your earning potential, pursuing higher education can lead to an opportunity cost.

    For example, college may end up costing more than the possible four years’ of income you could’ve earned had you started working straight after high school.
  • Huge debt: Student loans can help you achieve your degree. However, it can also leave you with large debt that you will repay for many years.
  • Expenses: Paying for your tuition, books, room and other school-related fees can lead to opportunity costs. For instance, you could otherwise use the money to purchase necessities and other expenses.

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TAKING ADVANTAGE OF STUDENT LOANS

With proper use, you can take advantage of student loans and enjoy their benefits. You can also avoid making mistakes that could lead to opportunity costs.

  • Pick your ideal repayment plan: It’s essential to choose the right repayment plan for your circumstances. While it's tempting to choose the plan that offers the lowest monthly payment, you have to consider long-term effects like paying more in interest.
  • Decide on the amount: Determine how much student loan is too much for your circumstances, repayment and your future salary potential. You should also consider your living expenses, other debts and income. Consult a financial advisor or professional if you need additional help with financial planning.
  • Determine the borrowing cap: Weigh your student loan options before deciding on what is best for your circumstances. Compare the terms, advantages and risks. You should also check the borrowing cap for each option.

Investing in Real Estate

A mortgage can also be used when investing in real estate. There are several types of real estate investments, such as rental, commercial, retail, industrial and residential.

Some people use a mortgage or loans for real estate due to its potential to gain higher ROI rates. It also allows them to have multiple investments at the same time and helps leverage wealth in the long-term.

Make sure this option is right for you and consider the possible risks. Otherwise, this investment can turn into bad debt.

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    Income

    Real estate investment can help you earn a steady income. It has cash flow ability which typically strengthens over time. Additionally, you can invest in multiple properties at a time.

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    Tax benefit

    Another benefit of real estate investment is the possibility of getting tax exemptions and breaks. For instance, rental income may be subject to self-employment tax. Research on state and federal regulations to find out more about tax benefits for real estate investments.

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    Appreciation

    Real estate is a capital asset that appreciates over time. That means the value of your property will be way more than the amount you used to buy it.

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    Pay off debt

    You can use the income you earn from your real estate investment to pay off the loan or mortgage you took out.

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REAL ESTATE INVESTMENT TIPS

Real estate can be a great investment. However, you should know how to properly manage your investment to benefit from it.

  • Figure out your goals: Why do you want to invest in real estate? What are your goals? Once you determine your motivations, create a time frame for each of them. This timeline can serve as your guide.
  • Determine your purchasing power: You have to figure out how you can finance this investment. Do you have enough purchasing power? If not, consider getting a loan or mortgage.
  • Decide on the right property: You should also ensure that the real estate investment you choose can help you financially. For instance, buying a property that has earning potential, such as a rental unit, can help you earn income you can use to pay off the loan that you took to finance your purchase.

Starting a Business

Starting a business requires money, time and effort. You will need to come up with enough capital to cover the initial expenses. Aspiring entrepreneurs who do not have the financial capacity to launch their dream business can opt to take out a loan. Depending on your needs and circumstances, the best loan option may vary. For instance, the most common loans for startups are small business loans and personal loans.

But before you decide on a loan, make sure you understand the requirements, steps and potential risks.

Examples of Successful Businesses that Took on Debt

Taking out a loan to start a business is not something new. In fact, many successful entrepreneurs in today’s market started small. However, this method does not apply to every business. You have to make sure you understand the potential risks of using a loan to launch your business — failure can lead to a huge debt that is hard to pay off.

  • Company
    Title
  • Starbucks
    The founders pooled $8,000 together to start the business in 1971. They also took out a loan to start selling coffee beans. Today, it’s one of the most well-known coffee companies in the world.
  • The Body Shop
    Before becoming the company that it's today, The Body Shop started as a home-based business. Anita Roddick took out a bank loan to purchase the ingredients she needed for skincare products.
  • Alienware
    This computer hardware company produces products for gaming computers. Before becoming a subsidiary of Dell, it was a startup customizing computers for gamers. To launch the company, Alex Aguila and Nelson Gonzalez took out a loan.
  • Domino’s Pizza
    Tom and James Monaghan took over a small pizza restaurant chain’s operation in 1960. While the brothers paid $500 down payment to secure the deal, they had to borrow $900 to fully pay for the store. It has thousands of stores located in over 83 countries today.
  • Ben & Jerry’s
    This ice cream company was started with two high school friends in 1978. It needed financial assistance to help it grow into the well-known and mass produced product it is today.
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LAUNCHING YOUR DREAM COMPANY

Starting a business comes with many expenses. Fortunately, there are various ways to finance a startup. One of these is through a loan. The following tips can help you determine the best use of a loan for your business.

  • Inventory: Depending on the business, you may need to have a lot of supplies. You can use a loan to purchase inventory or replenish your stocks. You can also use it to produce the items you want to sell.
  • Equipment: Aside from inventory, businesses may also need to invest in dependable equipment. A loan can help you get the necessary equipment to start your company and keep it running.
  • Expenses: Running a business comes with daily expenses, such as utility bills. Taking out a loan can help you pay for these while you are trying to earn revenue.
  • Refinancing: A loan can help consolidate your debt. You can use it to pay other debts so that you only have one loan to think about.

Getting a HELOC

There are various ways to build wealth using good debt. One of these is through the home equity line of credit (HELOC). Generally, HELOC is a type of revolving line of credit taken against a home. With this, you can get a maximum loan amount with interest. Instead of one lump sum, you can use the HELOC whenever you need it.

HELOC can be used in different ways. For instance, you can get money for renovation, education, investment or debt consolidation.

  • Home renovation

    Many homeowners apply for HELOC to cover the expenses they may incur for a home renovation. Although getting a HELOC takes equity from your home, using it for renovations and repairs means you are reinvesting it in your property. This can help you add to the home’s value.

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    Education

    In some cases, HELOC comes with lower interest rates than a student loan. The total available amount may also be higher. That is why some people use it to finance their education. However, it may put your home at risk.

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    Investments

    Depending on your goals, you can use a HELOC to invest in something with a higher return. That said, you have to make sure that the interest rates are low.

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    Debt consolidation

    HELOC can help you pay off other debts, especially those with high interest rates like credit card debts. However, keep in mind you’re putting your home at risk.

Are HELOCs a Smart Move?

Getting a HELOC can be advantageous. For some homeowners, it can be a smart move. However, depending on the circumstances, getting a HELOC may not be the best fit for you because you’re putting your home on the line. Make sure you weigh the pros and cons before applying for a HELOC.


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ADVANTAGES
  • HELOCs do not come with closing costs, especially if you have good credit. This means you might not need to pay for application fees and appraisal costs.
  • Unlike credit cards, HELOCs do not charge fees for cash withdrawals.
  • HELOCs can have the lowest interest rates, especially if compared with unsecured loans.
  • You can typically choose to pay off the balance on a HELOC whenever you can. However, discuss this with your lender to prevent any issues.
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DISADVANTAGES
  • Typically, the minimum monthly payment for a HELOC only covers interest charges. Choosing to pay off minimum payment all the time may result in a longer payment term.
  • Depending on the lender, a HELOC can have adjustable interest rates. In such a case, the interest rates may rise over time.
  • You put your home at risk. HELOCs take equity out of your home. Depending on how you use the money, that can be disadvantageous for you. Your home’s value may even decrease.
  • There may be hidden fees. It’s important to understand the terms and conditions that come with a HELOC. Depending on the lender, there may be hidden fees that could increase your debt.

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USING HELOC THE RIGHT WAY

Depending on how you use HELOC, it can be a smart move. However, not fully understanding how it works could lead to a negative impact.

  • Check the APR: Make sure you check the annual percentage rate (APR). Some lenders may charge high APRs that could lead to higher payments. You should also check how long the introductory rate lasts.
  • Watch out for markup increases: Some lenders may quote their HELOC interest rate is based on the prime rate. But you should not simply assume that they're really using the prime rate. Ask if there’s a markup. In some cases, the lender uses the prime rate but adds a markup.
  • Compare your options: Do not apply on the first lender you encounter. The interest rates and terms of a HELOC vary per lender. So, make sure you compare your options before coming up with a decision.

Powerful Ways to Build Wealth With Debt

For some people, borrowing money is a great way to earn money. That may be true in some cases. With good debt, you can build your wealth and maximize the returns on loans. However, you have to make sure that you are using debt responsibly. Create a clear plan and determine your objectives.

Borrowing to Invest

Investing can be a powerful tool to build wealth. If you do not have enough money to access a good investment, you can opt to borrow a modest amount. Then, invest the money. For instance, you can use it to purchase a real estate investment property.

That said, there are many factors you need to consider. Research tax implications. Paying off a debt will not only require you to prepare the amount you borrowed. You have to pay interest rates. There will also be taxes on the amount you settled.

Fueling Investments Through Debt

Many consider the leverage they could achieve when using debt for investment — when you use the money you borrowed to increase ROI. It helps you achieve the returns you are aiming for. The following are some various methods to build wealth by leveraging debt.

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    Margin Investing

    Investing on margin refers to purchasing a higher dollar amount of stock than the money that you have. For instance, if your account has $50,000, you can leverage your investment by opening a margin account. With this, you can have an additional $50,000 loan from a broker. This increases your purchasing power to $100,000.

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    Geared Share Funds

    This investment strategy focuses on listed equities. With this, the liability and loss of the investor is only limited to how much they invested.

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    Leveraged ETFs

    You can also use your loan to invest through leveraged exchange traded funds (ETFs). With this, you can invest in certain bonds, indexes, commodities and sectors. However, this method can magnify losses. You may have to be an experienced trader to understand the ins and outs of these funds.

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    Short Selling

    This method refers to the borrowing of shares from investors and selling them when you think the shares will decline. While short selling can lead to high returns, it can also cause huge losses much more than your initial investment.

Debt for Wealth

Borrowing money can help you start your investment journey to build wealth. Let’s say you decide to borrow $50,000 for your investment portfolio. A 20% gain in your portfolio will lead to a $10,000 return.

Now, if the interest rate for your loan is 5%, you will only need to pay $2,500 in annual interest. Since your portfolio has earned $10,000, you can pay off the interest and still have $7,500 in returns.

This only applies for a year. The money you borrowed and invested is still at risk.

  • Loan Amount
    Annual Interest Rate
    Interest Paid
    Gain
    Total Investment Earnings
    Total Gain
  • $50,000

    5%

    $2,500

    20%

    $10,000

    $7,500

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INVESTING COMES WITH RISKS

While you can increase the money you borrowed, there’s a chance you can lose it. If that happens, you will end up with a debt without any returns. That’s why you should feel confident with your investment options and determine if investing is right for you.

Paying Off High Interest Debt

Good debt can help with debt consolidation. It’s when you avail one huge loan so that you can pay off multiple smaller debts. This is a great strategy to address high-interest debts such as credit card and medical debts.

There are two types of loans you can use for debt consolidation. The first one is a secured loan, where you use a personal asset as collateral to fund the loan. The second option is an unsecured loan. With this, you can borrow money without collateral. However, unsecured loans typically have higher interest rates compared to secured loans.

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DEBT CONSOLIDATION RISKS

Using debt to consolidate debts can help you manage your finances. However, there may also be risks you need to be aware of. For instance, you risk losing the asset that you used as collateral. Depending on the loan interest rate, it may also be possible for you to end up paying more than the amount it would cost to manually pay down the debts.

Debt Recycling

Debt recycling offers a way of managing debt to build wealth. This strategy includes paying off non-deductible debt, such as a home loan, to recycle it as a tax-deductible debt.

With proper execution, debt recycling can help you start investing without having a financial source. It can also help pay off your mortgage earlier than planned.

However, it's important to understand that debt recycling is not for everyone. It comes with potential risks. For instance, if you use the existing equity of your home, you risk losing it. Additionally, your investment may not incur income and even end up in losses.

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DEBT RECYCLING RISKS

Similar to other methods of building wealth, debt recycling comes with risks. If you are a low-risk investor, it may not be for you. That’s because debt recycling depends on your investments’ performance. Consider your cash flow, existing debts, assets and expenses before getting into debt recycling.

An illustration image of a man rolling a huge boulder up a steep hill because of a bad debt.

5 Rules to Avoid Pitfalls and Bad Debt

Debt can be a good thing. It can help you attain your financial goals and even build your wealth. But debt also comes with responsibility. You have to make sure that you can manage your payments well. A solid financial plan and adopting good money management skills can help ensure that good debt will not turn into bad debt.

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    Set up auto payments

    Failure to pay your monthly bills can lead to late fees. You can set up automatic payments to avoid forgetting. Check with the lender what payment methods are accepted.

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    Use extra money to decrease the balance

    If you have excess cash, consider using it to lessen your loan balance. That said, you have to make sure that the lender does not charge penalties for early payback.

  • Prepare a fallback

    If possible, have a fallback fund that you can use to cover expenses should you lose your source of income. This way, you can still pay for your living expenses and even pay off your debt.

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    Create a budget plan

    Budgeting is the best way to manage your finances. Calculate your cash flow and determine how you can use it best to pay off your debts without sacrificing your living expenses. You can also use a budgeting app to track your finances.

  • Get help

    If you think that your financial issue is too big to handle and you cannot solve the problem on your own, then it may be best to seek help. You can also do this before choosing to get a loan. Consult a financial advisor or professional, if possible.

An illustration of a man considering the risks and benefits of taking out a loan.

How to Determine Your Debt Tolerance

Debt, even good debt, is not for everyone. Before getting a loan, you have to weigh the pros and the potential drawbacks that come with it. Aside from your finances, your well-being can also be affected by having too much debt.

Knowing your debt tolerance can help you figure out how much debt is too much for you. Calculate your debt-to-income ratio. Check your credit utilization. It’s also helpful to know your comfort borrowing level.

How Much Debt Is Too Much?

Good debt can turn into bad debt if you fail to manage it properly. But when is debt considered too much? The following are some signs you can watch for to determine whether you have too much debt. Recognizing these early can help prevent more financial problems.

1

You are unaware of how much debt you have.

If you can no longer keep track of your debt or you’re ignoring it, then you may already be suspecting that you have more debt than you can afford.

2

Your monthly bill is higher than your income.

If the total monthly debt payments cost more than the money you are earning, you have too much debt. You have to make sure that your monthly debt bill is 28% or less than your monthly income.

3

You constantly borrow money to pay off debts.

If you are trapped in a cycle of getting loans, taking cash advances or borrowing money from family and friends to pay back debts, your debt is too much for you to handle.

4

Your debt affects your mental health and work performance.

Losing sleep over financial worries may be a sign that you have too much debt. Likewise, if your financial problems affect your work performance, it's time to evaluate your debt situation.

Assessing Your Reasonable Amount of Debt Load

The reasonable amount of debt load may vary per person. That is because of differences in financial situations and circumstances. Generally, using the 28/36 rule can help you determine how much debt you can handle.

The 28/36 rule is a way to calculate the amount of debt an individual should assume. According to this rule, you should only spend 28% of your income for household expenses. For debt service, the total should not exceed 36% of your gross monthly income.

Aside from this method, you can also calculate your debt load tolerance through the following:

1

Calculate debt-to-income ratio (DTI)

DTI is a way for lenders to determine whether you can handle the amount of loan you are applying for. You can use this to gauge your debt load tolerance. Compare the monthly debt payments to your gross monthly income. Ideally, your DTI should not exceed 36%.

2

Monitor your credit utilization

This refers to the amount you owe versus your credit cards’ limits. Keep in mind that credit card debt has high interest rates and is considered bad debt. While you can use it for big purchases, you have to make sure you can afford the monthly bills.

3

Add your total debt

Borrowing more money can cause more interest charges and fees. Make sure you review the interest rates of the loan product you are interested in. You can then break the payments into monthly dues to understand how much your debt really costs.

4

Determine your comfort level

Evaluate your current financial situation. Are you ready to take on the risk of having debt? Can you afford to pay the loan throughout the loan term? Considering your comfort level can help you strategically take on debt and keep you within your budget.

Getting Help Managing Your Debt

Sometimes, managing debt requires professional support. That is especially true when your debt becomes a burden. Aside from the financial implications, debt can also affect your mental health. In such cases, the best option is to seek help. The following tips can be started immediately to properly manage your debt.

1

Create a payment calendar

Looking at the debt as a whole can be overwhelming. What you can do is to take payments one at a time. For instance, you can create a payment calendar. Mark the dates when you will receive your paycheck. This way, you can prepare for your bills.

2

Pay the minimum amount

If you cannot afford the full monthly dues, consider paying the minimum amount. While this strategy may not help you pay down the debt quickly, it can keep your account in good standing and avoid late fees.

3

Learn to prioritize

The best way to pay off debt is to prioritize. List your debts based on interest rates. For instance, credit card debts tend to have high interest rates. So, it may be ideal to take care of them first. Consider consolidating your debts by taking out a high loan amount with a low interest rate.

4

Get help

If you find it hard to manage and pay your debt, it helps to seek outside help. You can hire a debt counseling service provider or apply in a debt consolidation program. Financial therapists can also help.

Expert Insight on Taking on “Good” Debt

While there are some types of debt that can be considered good, you still need to ensure it’s being properly handled and managed. MoneyGeek asked industry experts for their insights on good debt.

  1. What is the best way to handle debt? Any tips for consumers?
  2. How can individuals use debt to their advantage?
  3. When can good debt turn into bad debt?
Sean Fox
Sean Fox

President of Freedom Debt Relief

Matthew Vitlin
Matthew Vitlin

MBA and Financial Advisor at Northwestern Mutual

Doug Carey
Doug Carey

Chartered Financial Analyst and Owner of WealthTrace

Resources

Whether good debt can help you or not depends on your circumstances. The following resources and tools can help you better understand how to use good debt to your advantage.

  • Banks: Financial institutions offer loans. Depending on where you plan on using the money, you can get good loan opportunities with fair fees and interest rates. Talk to your bank to learn more.
  • Federal Student Aid: If you are looking for grants and aids to finance your education, you can check the Federal Student Aid website. Here, you can find options to pay for your studies.
  • Federal Trade Commission: Be aware of various frauds and scams that target consumers. Find out how you can prevent falling victim to these scams and protect your finances.
  • GovLoans.gov: Use this online resource to find government loans. Check the eligibility requirements for different types of loans.
  • Kabbage: This online resource gives access to different tools you can use to grow your business. Find funding options and apply in minutes.
  • National Small Business Association: Learn more about running a small business. Get updates on legislations, find business insurance providers and see how NSBA partners can help your business.
  • Personal Loans USA: The company helps connect borrowers to lenders. Simply submit your loan request and wait for interested lenders to contact you.
  • Small Business Administration: If you are interested in starting a company but you do not have enough capital, you can get help from SBA to access a loan.
  • Small Business Development Centers: The SBA funds development centers to offer counseling services to local businesses and entrepreneurs. Find a development center by entering your ZIP code.
  • USA.gov: Learn more about different government programs and find grants and loans suitable for your financial needs. You can also check the requirements on their website.
  • US Department of Housing and Urban Development: If you want to own a home and are looking for loan options, check out the US Department of Housing and Urban Development and find out more about FHA Loans.

About the Author


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Nathan Paulus is the director of content marketing at MoneyGeek. Nathan has been creating content for nearly 10 years and is particularly engaged in personal finance, investing, and property management. He holds a B.A. in English from the University of St. Thomas Houston.


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