Good Debt vs. Bad Debt for the College Student

Acquiring a little bit of debt during the college years is anticipated. Accumulating too much, however, can get you into a lot of trouble. While it’s tempting to go hog wild and charge up a fortune as you soak up the Orlando sun and the knowledge of the ages, it’s smarter to step back and take a look at good debt versus bad debt. One can help you on the road to life; the other might haunt you for years to come.

So, what kind of debt is considered “good” and what exactly is meant by “bad?”

It all comes down to the necessity factor. Whether it’s charged on a credit card or chalked up to loans, some debts are justified in the college years and others just won’t be necessary.

Good Debt

Technically no debt is good debt, but sometimes it’s a necessary evil. Before signing loan documents or using college student credit cards to pay for something, sit down and make a list of priorities and questions to ask yourself before paying. If, for example, you can justify debt because it’s helping you further your goals, it’s probably “good debt.” Student loans are generally considered good debt because they can help you enjoy a better job and career opportunities down the road. Buying a new laptop to make taking notes in class and studying easier might also be a smart purchase with college student credit loans and proceeds. If you really need an item or service, it’s probably good debt.

Not So Good Debt

These tend to be the “want” purchases. In other words, if it’s something you could live without and it won’t further your goals, it’s probably bad or at least unnecessary debt. Buying a shiny new laptop to play video games, for example, might not be a great idea on a credit card; neither will that all important spring break trip to Cancun for that matter.

Distinguishing between the two…

To help yourself avoid bad debts and make sure you come out of school owing as little as possible, always question your charges and purchases. Make a list of expenditures that are approved and make sure to check it before buying. Sticking with what is approved in your own mind and avoiding anything other than cash buys with the rest can help keep you out of trouble.

Another thing to consider is how much it will actually cost you to pay back said debt. It certainly will cost more once you factor in purchase and loan interest rates. Generally speaking, student loans have much lower interest rates than credit cards so it will ultimately cost less overall to pay back.

Your purchase might be bad debt if…

• its value goes down immediately.
• it has no potential increase in value.
• it’s not tax-deductible.
• it doesn’t contribute to producing more wealth in the long run.

It’s hard to finish off a college career without acquiring some debt. Between your Orlando apartment, textbooks for school, and the occasional recreational splurge, you’re sure to have at least a little debt. If you manage to keep your expenditures to a minimum and put a priority on real needs versus wants, you should come out in fairly good shape.