"Healthy" debt?

Question

I have heard that there is such a thing as "healthy" debt. I am just wondering- if it actually exists -how much/what kind of debt is healthy to have?

I'm a student with no steady income, so I'm just wondering

Answer 1

Healthy debt is debt which is tax deductible and in an amount which is reasonable for the income of the debtor. An example of such debt is the debt a person would incur in purchasing a home with a mortgage. If that person is living in the home they purchased, they are entitled to deduct the interest payments on the mortgage debt from their gross income, which reduces the total amount of taxes owed.

As a student, since you have no steady income, you do not have the capacity to incur this type of debt yet.

Another type of debt I would consider healthy in your case, is any debt you incur to finance your education and that you are allowed to defer payments on until you begin working. Federally funded loan programs would be considered "healthy debt" in this case.

Unhealthy debt is credit card debt, personal loans used to purchase depreciating assets, and auto loans, in my opinion.
All of these types of debt cause the debtor to pay more for an asset that loses value over time.

Best Regards,

Docmase

Answer 2

Some people will say education or a home is healthy debt because it does provide some returns. After all education does give you upward mobility and an increase in potential to earn money. And a house usually increses in value over time.

I suppose those are healthy when you consider getting a loan for an Acura or something that is a total waste of money. But personally I think there isn't such a thing as helathy debt - you'd do well to avoid it as much as possible.

Note: I drive an Acura, but I paid cash for it used. I also have debt in my home, but I'm paying it off early.

Answer 3

The term Healthy Debt was created by the people who want to lend you money. They will make money off you by doing so, so they want you to feel positively disposed to borrowing.

The absolute best case is to have no debt. Sometimes this is not practical, so borrowing within reason to get a great education, or borrowing to buy a house on reasonable terms are the least offensive debts. But that still does not make them healthy.

If you borrow, you should have a written down plan as to exactly how and when you will pay the loan off. It is far better to save and buy with cash.

The lenders want you to believe there is healthy debt, and from their perspective it is healthy. Become a lender and you'll be convinced there is healthy debt.

Answer 4

Good Debt

Some of your debt might be considered an investment. You’re probably thinking, “How can anything as bad as debt be considered an investment!” If you took on the debt to purchase something that will increase in value and can contribute to your overall financial health, then it’s very possible that debt is a good one. while Just like there is good debt, there are some bad debts too. When you use debt to finance things that can be consumed, you aren’t accumulating good debt. This is the kind of debt that creates an unhealthy financial situation. Credit card debt is often considered bad debt because of the nature of items that credit cards are used to purchase. You should never accumulate debt to purchase everyday items like clothes or food. If you use a credit card for these types of purchases, you should pay the balance in full each month.

Answer 5

No such thing as Healthy/good debt. You pay interest on all debt.

Yea, you get a tax break on the interest you pay for a mortgage. But. You still pay more interest a yr than you would save with the tax break.

go to daveramsey.com and listen to his radio show or watch him on FoxBusinessNews. He has lots of great advice on money and debt.

Some people call him a radical. 250 yrs ago people called our founding fathers radicals.
I say hes in good company.

Debt free is the way to be!
Freeeeeeeeedoooooooom! YEA, BABY!

Answer 6

Healthy debt involves anything that is tax deferred. This is especially true for student loans since you said you are a student. If you have taken loans you will generally have 6 mos until you have to repay after graduation. As you pay your student loans the interest becomes tax deductible when taxes are due, it actually lowers your income giving you a bigger tax refund. Homeownership for those who are not hurting by the situation in housing right now can also claim interest as tax deductible. I have both student loans and a home, so when tax time comes believe me, this tax deductible items help me out a lot

Answer 7

The only healthy debt is a mortgage because you are borrowing on an asset that appreciates (except lately, but that will change eventually). Any debt used to purchase a depreciating asset (furniture, cars, computers, etc.) is unhealthy, credit card debt is worse, and payday loans are the worst.

Answer 8

For a student with no steady income, there is no "healthy" debt. If you were fully employed, you might want to purchase a car or furniture with a loan to establish a history of paying debt back on time with no late payments. That would be considered healthy debt. Or a loan to purchase a home and making all of your payments on-time would be healthy debt.

Answer 9

Healthy debt refers to when you can borrow someone else's money and use it to earn a higher return (more than enough to cover the cost of the debt). Margin accounts in a brokerage account is one example. Borrow money to buy stock. You borrow at a rate of 6% and earn a return of 12%.
You made money and you didn't have to use your own money.

Credit card debt is very bad debt. You should strive to pay off your account monthly if you have one or if you can't, pay it off quickly and then cancel.

Mortgage is ok because of the deductibility factor on income taxes but there is a limit. 100% financing is bad.
80% financing is ok.

I don't like car loans. Pay it off asap. It's better to save and pay cash.

When you borrow money, you are borrowing from the future.

Answer 10

Let’s say you’re making a good salary, but you’ve got a big mortgage and car loan. Is there a point at which you’re tipping the scales and being weighed down with too much debt?
One way to gauge is by calculating your debt-to-income ratio. It’s easy.