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Good Debt vs. Bad Debt

This post is a part of our Monetization of Academia informative web series, and is available online only. In this article, intern Jhanay Davis shares her side of the debt debate, explaining the difference between what financial counselors call “good” debt and “bad” debt. 

By Jhanay Davis, Editorial Intern

When I think of debt, even the word scares me. It sounds too close to dead, which translates into the death of a credit score that I don’t yet have. I’m not afraid to admit it; I was afraid of getting loans!  Then I was afraid that if I didn’t get a loan, I would be an adult without credit and that seemed like something I probably would want to have. I was at a crossroad. Fortunately, I figured out soon enough that a loan wouldn’t be so bad. It would help me to make an investment in my education while simultaneously building my credit. This sounded like a pretty good deal to me.

It sounded like a pretty good deal because it was. Although I am purposely putting myself into debt, I have acquired what is known as good debt. Good debt was explained to me as debt that will eventually make me money. My student loan is the determining factor between my high school diploma and my bachelor’s degree. I have been told by countless teachers that college graduates make more money than high school graduates. Therefore, I can expect to have a salary that will allow me to repay my debts after college and live comfortably.

Like all things, this good debt could potentially turn into bad debt very quickly. I have been told that when applying for loans, it is wise to limit the total of monies borrowed by what your projected first year’s salary will be. Basically, if I can’t expect to make $30,000 right out of college, my student loan debt should not exceed $30,000.

Many students make the mistake of over-borrowing in college to live lavishly. I’ve seen countless people take out loans to pay for off campus apartments, new cars or a new wardrobe. This is the catalyst for good debt becoming bad debt. As stated before, good debt is debt that can make you money. An apartment, new car and new clothes cannot make you any money. These things should not be funded with loan money – EVER! College is a temporary setting and it is important to know that things only get better after college if you are smart during your collegiate experience. That lavish lifestyle can come after your education is out the way but it will be temporary also if you can’t repay your debt. Uncle Sam and Sallie Mae give borrowers six months but after that, they will be present with their hands out.

Good debt does exist and can be beneficial to borrowers. It is important to be wise about your finances so that mistakes don’t cost so much in the long run.

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