When you look at your bills each month, you may feel overwhelmed by the amount of money that you’re spending simply because of debt. At times your debt may seem like a trap that you'd like nothing better than to fight your way out of, but you must take note of the fact that not all debt is really bad. When lenders evaluate your credit report to see what kinds of accounts you have, they'll look at some debts more favorably than they will others. If you’re focusing on getting out of debt, you first need to understand which debts are considered bad and which ones are viewed as good.

Some of your debt might be considered as an investment. If the debt was incurred to purchase something that can be expected to go up in value and contribute to your overall financial health, then it’s very possible that such debt is good. A home purchase, for example, could very easily be considered as good debt. Since homes (generally) appreciate in value, the mortgage loan that you incur to buy your house is actually an investment. Another example of good debt would be a student loan taken out to finance higher education. Obtaining a college degree usually means that you’ll make more money over the course of your lifetime.

However, just as there is good debt, there are bad kinds of debt as well. When you use debt to finance things that can be consumed, you generally aren’t accumulating good debt. This is the type of debt that creates an unhealthy financial situation. Credit card debt is usually considered bad debt because of the nature of the items that credit cards are often used to purchase. It's wise to avoid accumulating debt on everyday items such as clothes or food. If you use a credit card for these types of purchases, be sure to pay the card's balance off in full each month (doing so will allow you to avoid costly interest charges).

When evaluating your debt and overall financial situation, it’s usually a good idea to focus on paying off your bad debts first. Since they provide no value, they're more costly to carry than your good debts. Credit cards and auto loans (which generally have higher interest rates) should typically be paid off before tackling mortgages or student loans.

Good debt should be obtained through wise decision-making about not only your current situation but your future as well; it should never be taken on simply because it's good debt. For example, you might make the decision to acquire your Master’s degree in order to increase your earning potential. Taking out a student loan – if you have no other way of financing the program – would therefore be a valid reason for incurring additional debt. However, you must always be careful not to incur too much debt, regardless of if it's bad or good. If you’re overloaded with debt, it doesn’t matter what type it is – it's a danger to your financial health.

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