You may be one of those who feel the familiar sense of panic every time the monthly bill comes. But not all debts are actually scary because there are debts that can be considered “good”. The debts that you should be wary of are the bad debts.

Good debts are debts that are used to finance projects that appreciate in value and can therefore contribute to your financial assets. Good debts are credits that are usually spent for investments. Examples of debts that can be considered as good ones are when you purchase a piece of land and when you take a student loan to support your tertiary education. Lands never depreciate, and in fact, always increase in value. Taking a mortgage loan on a purchased land is a very good investment.  A loan made in order to finance one’s education can also be considered a good debt. This is because educating one’s self to get a college degree can be one of your tickets to attaining a good-paying job, and consequently, a better financial health.

The kinds of debts that you should be aware of are those that are made for something that will not enable you to earn something in return. Bad debts are those that are used on consumables, and therefore do not give any return of investment. Debts that are made out of credit card are labeled as “bad debt” because most of the purchases made out of this kind of credit are for perishable items that do not help in any way to improve one’s financial status. Most of the time, people pile-up credit card  bad debt because of transactions for groceries, clothes, and household needs that do not grow in value over time. If you buy these kinds of stuff, just make sure that the payments for the balance are paid in their entirety to avoid interest charges, which if not given enough attention, could blow-up to an amount that would then become very difficult to pay.

Another kind of expense that is considered bad, if made in credit is vacations. Although vacations may refresh you and make you relax, vacations do not increase in value and can not contribute to your over-all financial well-being.

You can make a good debt through making wise spending that is, deciding well on where to spend your money. An example of which is when you pursue to take on higher studies with the foresight that the degree will give you a higher chance of obtaining a good paying job. This kind of debt is valid and wise if there is no other way to pay for your education but to make a student loan.

It is good to note that when paying you r loans, you should prioritize paying your bad debt loans since they are not earning extra value for you. In this sense, they can be considered more expensive than good debts. If you have car loans, credit cards, home mortgage, and student loans, you should pay the two former debts first and then the two latter ones.