<p>Someone once told me that debt that a person accumulates because of going to undergrad and grad school is called "good debt?" Is that true? What this person meant by that phrase is that creditors would not hold it against you if you have "good debt." If you want to take out a loan for a house, your "good debt" would not be a factor in you not recieving that loan. Is all of this true?</p>
<p>I have never heard anything like that
when you are making a big purchase- your assets are considered as is your debt and your income.
If you have $50,000 worth of school loans and you are paying $500 a month on them, how are you going to have any more money available for a mortgage than if you have $50,000 in debt because you bought a sportscar?
At least with the sports car you can sell it if you have to. ;)</p>
<p>Actually, Suze Orman always talks about the concept of "good" debt vs. "bad" debt. (Good debt is taken on in the hopes of making money in the future: investment home mtgs,business loans, student loans, etc. whereas "bad" debt is credit card purchases for things not needed but wanted, fancy car loans, etc.)</p>
<p>She says that with bad debt, especially consumer debt you are using your future to pay off your past.</p>
<p>However, this does not negate the fact that you should have a strong credit rating an low debt (as all debt is still debt when it comes to applying for credit and getting a mortgage) especially if you plan on attending law or medical school because the amount of money needed to extend exceeds the stafford loan limits so many students will have to take on additional loans. Some law schools especially Penn stress and strongly advise take your credit worthiness into consideration in the admissions process (because if you can't pay, you can't attend)</p>
<p>In addition, keep in mind that even good debt must be repaid. Being late with your student loan payments can affect your ability to do things in the futurea and this debt is not exempt from bankruptcy protection so it will be with you forever.</p>
<p>"At least with the sports car you can sell it if you have to. "</p>
<p>A sports car could definitely be considered "bad debt" if you don't have the cash flow to support it; furthermore, it sells at a depreciated value from when you originally purchased it.</p>
<p>"Good debt" usually provides leverage. Say you have 10,000 or so; you could take out a loan for $100,000 and purchase a rental property. Then, you could rent that property out, or sell it at an appreciated value in the future. That is an extremely abstract example, so don't go out and just purchase some real estate. lol ;)</p>
<p>"Bad debt" is just that--bad. And, as sybbie mentioned, it can include credit card debt and other unnecessary liabilities.</p>
<p>To sum it up, good debt will usually provide you a positive cash flow, and bad debt will drain your pockets.</p>