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Practical Money Matters Radio Series

June 24, 2013
Good Debt, Bad Debt

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Find out how the rules about "good debt" and "bad debt" have changed.


Before the 2008 recession, financial experts often differentiated between good debt and bad debt. The thinking was, some types of debt made sense because you'd come out ahead in the long run – things like buying a home or financing college. But after real estate crashed and college costs skyrocketed, people naturally became more selective.

Showing lenders you've paid off debt responsibly continues to be a great way to build credit history – taking out a manageable student loan or using credit cards wisely, for example. You'll more likely qualify for a mortgage or car loan if you've shown responsible payment habits – and get better rates. Bad debt is still bad debt: Spending beyond your means on "wants" rather than "needs."

Bottom line: Don't borrow more than you can reasonably expect to pay back.

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