The Difference Between Good Debt vs. Bad Debt: Part Two
In last week’s post, we looked at the difference between good vs. bad debt. This week we will talk about how to determine the “right” amount of debt.
According to financial experts, the definition of good debt is having a balance you comfortably pay every month, at a reasonable rate.
However, there are many grey areas when it comes to debt. For instance, a car loan may be considered bad debt because vehicles depreciate in value (often losing a quarter to a third the moment you drive it off the lot), but what if a car is your only option for getting to work, and you don’t have enough to buy in cash?
Then, suddenly, an auto loan can look like good debt.
Or borrowing money for home renovations? Many argue it’s good debt because it increases the value of your home. Here is a rule of thumb for debt. Your monthly payments should be no more than 25% of your monthly income before taxes.
From this as well as last week’s blog post, it’s important to not only know the difference between good and bad debt; always be realistic about your lifestyle and what you can really afford.
If you’re looking for a credit counsellor in Toronto, get a quick assessment with us today or call us at 416.900.2324. We will help you develop a plan, reduce your interest costs and get out of debt over time.