Bad Debt, Acceptable Debt, and Good Debt

In order to wisely process upcoming posts, consider the following definitions:

Bad Debt: when one pays all the principal and all the interest, outside of a tax favored environment.  This applies to most consumer debt.

Acceptable Debt: when one pays all the principal and part of the interest, inside of a tax favored environment.  I am not suggesting that any debt that meets this criteria is acceptable…simply that it might qualify as acceptable.  An example would be buying a house and paying it off fast.  Rapid payoff minimizes interest paid.  And the interest paid is tax deductible (in America).

Good Debt: when one can get someone else to pay off all the principle and interest for you.  I can think of three examples.  The first is when you purchase a rental property and the monthly rent recieved more than covers the payment.  In effect, they are paying off the debt for you.    The second is tied to those who travel by car for their profession.  Some companies offer a generous mileage reimbursement package that more than covers the monthly payment and related automobile expenses.  The third is not related to money but is far more important.  The Bible teaches that all people have a sin debt that must be paid in full.  The good news is that Jesus died to pay off your sin debt for you.  Amazing!  This is the best news I have ever heard!  For more information, see below.

Tagged as: acceptable debt, bad debt, Debt, financial, good debt, gospel, mortgage, payoff, saving money tips