When can debt be considered "good"?

Is there even such a thing as "good debt"? For instance, I maintain a low credit card balance and pay it off in full every month to keep my credit cards active and to grow my credit score, which has successfully worked.

On the larger side of the debt spectrum, I have car payments every month. Thankfully, it is a comfortable car payment, so I feel lucky to have a reliable car which allows me to commute to work and school everyday.

However, we all know debt is widely known as something to stay away from. So am I crazy to consider the "debt" I carry month to month to be "good" debt?

Debt, Personal Finance
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You are thinking about it in the right way. There is such a thing as good debt and bad debt. High interest rate debt that you take out to pay for consumer items, think credit card debt, is typically “bad” debt. You are using your credit card in a positive way, keeping a manageable balance that you pay off each month means you are not being charged interest and you are building your credit score. Bad debt tends to allow you to live outside of your means for a short period but ultimately will hurt you in the long term.

Good debt is the debt that allows you to improve your economic situation in the long term. A car loan so you can purchase a vehicle, to take you to work to earn dollars and advance your career can be a type of good debt. This is only true if the terms of your loan are sound, i.e. a low interest rate and a repayment term that matches or is shorter than the useful life of the vehicle.

Typically, the most common example of “good” debt is a home mortgage. The reason for this is many individuals place great value on taking out a loan to purchase a potentially appreciating asset that may be tax deductible. Again, you need to examine the terms of the underlying loan to make sure it really is good debt. 

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