Good Debt? Bad Debt? Too Much Debt?

 

When Can Debt Be a Good Thing?

While it can be scary to have debt at all, certain forms of debt can be beneficial to hold if they are managed correctly. One of these debt forms is called installment credit and includes education, home, and auto loans. Installment credit is a borrowed sum that is then returned in consistently timed payments over a term. This type of credit can, in some cases, assist in asset allocation while also increasing your credit score if all of the payments are made on time. This doesn't mean that you should take out installment loans merely to improve your credit score; you should only ever take out a loan if you absolutely need to and if you can pay it off in a timely manner.

 

Why is Having Too Much Debt a Bad Thing?

As mentioned previously, debt can be an intimidating topic. Having too much debt can mean that you need to sacrifice certain needs, and the ability to live comfortably in order to make payments on what you owe. Although trade-offs are a common occurrence, ultimately, there are a few signs that your debt may be too much.

 

Some Indicators That You May Be in Too Much Debt Include:

• Consistently using savings to cover debt
• Using more than 10% of your net monthly income on debt
• Consistently being only able to make the minimums on payments
• Feeling significant stress over making payments on time
• Struggling to keep up with utilities (water, electricity, etc.)