Having debts has become a way of life for people in today’s time and age where consumerism seems to be groping the world with all its vigour.  Debts are a very common and everyday syndrome among people and repaying the same has also become easy and convenient in today’s time.  Going by the current trend, it seems that life is running under debts and loans and people are extremely easy with it.  Along with this they are also at ease with the fact that they need to repay it via monthly installments.  Going by the basic definition of debt, it is a certain amount of money that an individual borrows from a party or an institution with the assurance that they will repay it back with a certain amount of interest.  Going by this definition, many people will be of the opinion that debt is neither a bad thing nor is it a good thing.  However, a micro-perspective view at this will help you understand the concept of debt in a better way.

Good Debt

Going by the famous saying that you need money in order to make money, it seems that good debt is synonymous with this saying.  One of the best ways to define good debt would be that it lets you generate your income and at the same time lets you increase your net worth as well.  Let us take a closer look at some of the most common examples of good debt:

Good Debt by Got Credit, on Flickr.  This work is licensed under a Creative Commons Attribution 2.0 Generic License.

College Education or Technical Education

A strong educational background is one of the most common ways to secure your future.  Interestingly, education also helps you to stay out of any sort of financial crisis because education guarantees job and that in turn guarantees financial security.  Therefore, it is important to have sound technical knowledge and proper college education because that will open your door to success.  Education has a direct correlation with employment, thus it is considered to be a good debt because it secures your future.  What’s more?  A proper job will also open up your scope to repay the debt along with the interests.  The return on investment is also good in case of this debt.

Small Business Owners

The increasing need to start a business on your own is primarily to earn more money.  The benefit of being your own boss at work lets you have a higher income and you are no longer dependent on paychecks.  The best part of running a start-up business and being an entrepreneur is the fact that your money will directly increase based on your willingness to work harder and earn more.  In such cases, taking advantage of a loan is considered to be a good debt because with the growth and success in business, the ability to pay off the debt also increases.

Good Investments

Short term investments are the best way to generate a higher income within a short time span.  However, making long term investments imply that people who are making the investments are looking forward to generating some wealth.  The scope to make investments is ample and they are the traditional stocks, bonds, precious metals and several alternative investments.  These are clubbed under good debt because there is scope for repayment.

Real Estate

Real estate is one of the most booming sectors and guarantees a good return on investment.  Therefore, it is important that you invest in a good property and sell it at double the price or even more than that and gather a big amount of profit.  Residential real estate properties are highly in demand and you can generate a regular flow of money from it by giving it out on rent.  Therefore it is always a good idea to invest in real estate because it lets you generate wealth or regular flow of money, hence considered to be a good debt.  That’s not all, commercial real estate is also a great way to maintain a regular cash flow along with several capital gain for investors who are planning to make some good investment.

Debt Consolidation Loans

Financial crisis is an extremely disturbing situation to be in.  It is extremely stressful and the reason behind sleepless nights.  If you are trapped in a financial crisis where you have already undertaken several small loans, then the only solution to this problem would be the debt consolidation loan.  Debt consolidation loan allows you to accumulate all the small loans together under one bracket where the rate of interest will also be low and the payment will also be once a month.  This is the major reason that several financial institutions focus on debt consolidation loan in order to bail out their clients from this situation.

Hopefully, these examples will give you clarity on the concept of good debt.