After reading that title, you are probably wondering what we are thinking when we say the words ‘good debt'. Believe it or not, there is such a thing, but most people only focus on the idea that debt is bad. In reality, this is not the case. There is such a thing as good debt. You simply need to understand what good debt is as compared to bad debt. Here we will show you the difference between the two.

Good debt is debt that you incur when you purchase or fund things that can only be had by securing a line of credit so that you can pay off over a long period of time. Of course, if you fall behind on the payments then you start to deal with a two edged sword with your good debt becoming bad debt. Never borrow more money than you can repay on a monthly basis, as this will cause you more headaches in the long run. What is classified as ‘good debt'? Here are two perfect examples.

Mortgage payments - Even though the housing market might be in bad shape, the average consumer still cannot pay off their homes in one lump sum or up front. As much as the idea of being mortgage free appeals to everyone, mortgage payments are one debt that we face whenever we buy a home. Make sure that you keep your mortgage debt within your means and that your payments are not unrealistic. If you have to, try to save up money for a deposit and then work out a realistic monthly payment that you can afford.

Student loans - Student loans can be for you or for a member of your family. The cost of a higher education is rising, and taking out a student loan sometimes is the only way of getting this education. Before getting the student loan, you should contact your college's financial aid department to see if you are eligible for grants or other tuition aid. If you can qualify for any of these, exhaust them first before getting your student loan. Once you have to start paying on your loan it is a good idea to make sure you pay it on time every month to keep from accruing any additional charges.

Bad debt on the other hand is the type of debt that can cause you problems because of the higher interest rates and the temptation to just pay the minimum payments. Here are some examples of bad debt that you should try to avoid if you possibly can.
Overdraft debt - In the United Kingdom, checking accounts can be set up so that you can pay for things even if the money is not in your account. This causes problems when you get your checks, as you have to pay the overdraft first before any other bills. Additionally, some financial institutions charge interest on the overdraft, which adds to the amount you have to repay.
Credit card debt - Charging purchases on your credit card is the largest problem most people face. In addition to the charges you have placed on your card, you have to worry about paying the interest rates which can be high. It's very easy to spend too much money when you use your credit card.

Store card debt - Like credit cards, store cards work the same way but only for certain stores. The interest rates on these cards are higher than standard credit cards and should be used with caution.