Debt may intimidate many Americans, but it doesn't always have to be so taboo. Maconomics founder Ross Mac joins Wealth! to break down the true difference between good debt and bad debt.
Mac outlines what it means to have good debt: "It is something that is going to add to your net worth. Say that with me, people: It's going to add to your net, while bad debt will take away from your net worth. So when we think about certain examples of good debt we are talking about your mortgage, we're talking about student loans, we're talking about business loans. "
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Editor's note: This article was written by Nicholas Jacobino
Video Transcript
- When we hear the word debt, most of us immediately panic, but debt doesn't always have to be so taboo. Ross Mac, Yahoo Finance contributor and creator of Maconomics is here to break down the difference.
ROSS MAC: Well, one right, I think some of the greatest financial teachers, the Dave Ramsey's of the world, one thing he will say is right, you just want to get out of debt as soon as possible. However, we definitely need to understand that there is good debt, there is bad debt. And so when it comes to good debt, just understand, it is something that is going to add to your net worth. Say that with me people. It's going to add to your net worth while bad debt will actually take away from your net worth.
And so when we think about certain examples of good debt. We're talking about your mortgage. We're talking about student loans. We're talking about business loans right at the end of the day, you're thinking, OK, I'm going to go to school, get a new skill set that's going to make me more attractive in the workforce. We're talking about mortgage. By definition, when it's all said and done, your house is likely to appreciate year after year.
And when it comes to bad debt, do you actually need that new car? That car that's going to actually lose value, the moment you drive it off. The lot, we're talking about, do you really want those high interest credit cards that you're buying for vacation. Yeah, it's true it's a great time. But going into debt for something that will surely take away from your net worth. And so when it's all said and done, one of the things that you want to think about when it comes to getting debt is actually understand the interest rates.
Understand the interest rates in terms of the actual loan and also be, it's OK to actually shop around to find the lowest interest rate. And another thing to think about is just saying, OK, is this going to add to my net worth? And the idea is saying, I'm trying to borrow money and understand that this will make me more money in the long run.
- So important, especially those interest rates what you end up paying in the long run definitely have to sit down and do the math. Ross Mac, thank you so much for being with us this hour.
ROSS MAC: Thank you.
