Few things in life are ever completely black and white. Even when it comes to debt, there is good debt and bad debt. Good debt is debt which people take on to achieve some of their long-term goals. Taking out a mortgage to purchase a home, for example, is good debt, because it saves you money and over time could even turn into a small nest egg, particularly if home prices rise in the area where you live. Good debt, in short, is debt that you deliberately take on because of the long-term advantages it creates for you.
When it comes to credit card debt, however, is there such a thing as good credit card debt? There are many good reasons to simply say that credit card debt is something to avoid at all cost. However, at the same we’re all tempted by some of those great 0% APR credit card offers from time to time. So, is credit card debt always bad? Or are there ways to use credit card debt to your advantage?
Yes, certainly, under certain circumstances it does make sense to take on credit card debt. Here is CreditCardGuide.com’s list of the two different types of credit card debt, good and bad.
Bad Credit Card Debt
Debt you take on to make ends meet. Many people struggling to make ends meet use credit cards as a short-term solution to fill in the gap. If you find yourself having to use credit cards to purchase groceries or pay for your utilities, you’re taking on bad credit card debt. While credit cards may help temporarily, in the long term, the accumulating credit card debt is likely to land you in greater trouble than if you’d turned to other solutions early on.
Debt from purchases you didn’t really plan to make. With credit cards, it’s much easier to get tempted and make purchases you didn’t plan for. If your monthly statement brings many such unwelcome reminders and you don’t have enough money to pay off those little indulgences, you’re taking on bad credit card debt.
Debt you can’t pay off within two to three months. The terms of credit card debt can easily change, and this makes credit card debt very risky. If your terms change for the worse, it could upset your whole financial apple cart. For this reason, any kind of credit card debt that you wouldn’t be able to pay off within a couple of months, if you wanted to, is bad credit card debt.
Good Credit Card Debt
Credit card debt that helps you save money. If you are a savvy consumer and have good credit, it is entirely possible to save money by using credit cards—if you play your cards right. If you’re planning, for example, a home improvement project, making a short-term loan using a low interest or 0% APR purchase or balance transfer offer can be a great way to go.
Credit card debt used to finance large, pre-planned purchases. Credit card debt can be good, when it’s used to finance large purchases that you’d make anyway, and you just use your card to make the purchase earlier (and even get some great rewards too).
In both cases, however, there is one important caveat: You must have a plan in place to pay the debt off within a few months in case your credit card terms turn against you. Yes, your good credit card debt can quickly turn bad. If your terms change for the worse and your payments go up or even double, your whole financial ship could get put at risk.
For this reason, no credit card debt is worth taking on unless you have either back-up savings in place, or have access to other types of credit (and no, that’s not just another credit card). If you don’t have savings, an acceptable back-up could be a home equity line of credit, so you can turn around and pay off the credit card debt without getting stuck with impossibly high interest charges.
