Distinguish between good debt and bad debt
It's important to separate the good, the bad and the toxic. A mortgage with an annual percentage rate of 3.5%, for example, can be weighed differently than a credit card with a 20% APR.
What’s good debt?
When the interest rate is low and fixed, and the loan is used to buy something that grows in value, like a house, business or college education. It’s also good if the interest is tax-deductible, like most mortgage and student loan interest.
● tax-deductible : 세금공제되는
"Are political contributions tax deductible?" "No, they are not."
정치적 헌금은 세금 공제가 됩니까? 안 됩니다.
deductible
adjective
뺄 수 있는, 공제[차감]할 수 있는
A deductible amount can be taken away from a total:
Expenses like office phone bills are tax-deductible (= you do not have to pay tax on them).
deductible
noun [ C usually plural ]
UK
an amount of money that is taken away from an employee's pay before they receive it
US
(UK excess)
a part of the cost of an accident, injury, etc., that you agree to pay when you buy insurance:
Customers can lower insurance premiums by taking higher deductibles.
deductible
noun [ C ]
an amount of money that you are responsible for paying before your insurance (= protection against loss) will pay you for an expense:
Judy’s car insurance policy had a $500 deductible.
A deductible for taxes is an expense that a taxpayer or business can subtract from adjusted gross income, which reduces their income, thereby reducing the overall tax they need to pay.
What’s bad debt?
Loans with high or variable interest rates that are used to buy things that lose value or get used up. Examples include high-interest personal loans for discretionary purchases like vacations, auto loans stretching five years or longer, or high-interest credit card debt with increasing balances.
What’s toxic debt?
No-credit-check and payday loans with APRs above 36%, loans so long you end up paying more than the item is worth, or loans requiring collateral you can’t afford to lose, like your car.
Bad debt has crushing interest costs and limits your cash flow, savings and ability to borrow for goals like buying a home, says Erika Safran, a certified financial planner with Safran Wealth Advisors in New York City.
But a low-interest mortgage that you can comfortably afford shouldn’t keep you up at night.
Common warning signs of problem debt
Your debt balance is not going down despite regular payments.
You’re living paycheck to paycheck, with no money at the end of the month.
You’re not contributing to an employer-sponsored retirement plan because you need the money.
You’re unable to build an emergency fund of at least $500 to buffer against financial shocks.
You’re using credit cards for cash advances.
Are my other types of debt a problem?
The following guidelines give you an idea of how much is too much in these debt categories and what to do if you’re