Americans, on a whole, seem to have a talent for racking up debt. From mortgages to car payments to student loans, the average American spends much of his life repaying money and keeping little of his earnings for himself.
While the word “debt” does tend to have a bad connotation, the reality is that not all debt is frivolous or even avoidable. After all, if a person comes from a modest background and needs to go to college in order to eventually be able to get a job, then he’ll probably have no choice but to take out loans to pay his tuition bills. And if a young couple decides that it’s time to stop throwing rent money away and instead purchase a home, then the people in question will no doubt need to take out a mortgage in order to finance their property purchase.
When it comes to owing money, it’s important for people to be aware that there is a difference between good debt and bad debt. Good debt is the type of debt that people accrue not out of frivolous spending and financial mismanagement, but of out thought-out necessity. Mortgage debt and student loan debt are both examples of good debt, as they will not usually hurt a person’s credit rating or minimize his creditworthiness provided that he makes all of his payments on time. On the other hand, credit card debt is usually considered to bad debt, as a high balance on one credit card can negatively impact a person’s ability to receive more credit from other lenders and agencies.
Although the credit industry does tend to make a distinction between good debt and bad debt, some professionals tend to see things a bit differently. Darren Hojnacki of the Atlanta-based firm Hojnacki & Hojnacki, LLC is a bankruptcy attorney who has been helping clients manage and settle their debts for the past three years. He says that to some extent, debt is debt, and that’s all there is to it. Sure, a mortgage might constitute a more “responsible” form of debt than the aftermath of an overly indulgent shopping spree. But if a person owes any amount of money that needs to get paid each month, then it almost doesn’t matter where the debt came from. The fact of the matter is that if a person has debts to pay off, then until he does so completely, he will always have to fork over a portion of his paycheck to somebody else, which is not a good thing.
Despite Hojnacki’s “debt is debt” attitude, he does agree that certain types of debt are certainly “worse” than others. Any form of debt with a high interest rate attached to it is, to an extent, bad debt, as it is likely to take a person much longer to pay it off. Additionally, in Hojnacki’s opinion, any debt resulting from the purchase of a new car should fall under the category of bad debt since automobiles have a tendency to depreciate quickly and lose value before their associated costs can be paid back in full. Finally, Hojnacki thinks that bad debt is any loan that requires the help of an outside person to pay it. If a person purchases a second home and relies on tenants to foot the mortgage bill, then the loan in question is actually bad debt, as in such a situation, a lack of tenant interest could result in foreclosure.
After all is said and done, people have varying attitudes when it comes to borrowing and paying back money. For some people, the idea of owing a small amount on a mortgage is enough to drive them crazy, while others might be content to spend their entire lives paying off vehicles, credit cards, and properties.
No matter what your feelings are with respect to debt, one thing’s for sure: If you take on more debt than your income can handle, then you’ll find yourself backed against a wall. So whether you’re the type of person who prefers to keep minimize his debts or enjoys the benefits of charging away, do your best not to get in over your head. Because once those debts start to spiral, it can be difficult to recover.
This article is for informational purposes only. You should not rely on this article as a legal opinion on any specific facts or circumstances, and you should not act upon this information without seeking professional counsel. Publication of this article and your receipt of this article does not create an attorney-client relationship.
