A big part of financial wellness is figuring out how to cut costs and save money. But it’s also important to understand how debt and credit can work together to support your goals.

Debt is often perceived as bad, unhealthy or detrimental for your financial health. But the reality is that not all debt is inherently bad. Some types of debt can be considered “good,” and can even play an important role in supporting long-term financial goals.

Examples of Good Debt

Good or healthy debt is any kind of investment that could grow in value or provide long-term income. A mortgage could be considered healthy debt. So could a student loan that sets you up to earn more money in the future.

Similarly, a home equity loan can be beneficial for improving your home. Low rates make this even more attractive because it adds value to your property.

Examples of Bad Debt

Bad debt, meanwhile, is typically used for things you may want and not necessarily need. Additionally, it often comes with a higher interest rate.

Credit card purchases, payday loans, cash advance loans and other high-interest loans are some examples. These can be even more detrimental if you let them accumulate.

Understanding Your Credit

Managing debt responsibly plays an important role in your financial wellness – and so does maintaining a strong credit score. With a stronger credit score, you could qualify for a better rate on a car loan or mortgage.

On the other hand, a lower credit score can make it more difficult to get favorable terms on a loan or mortgage. That’s because your credit score represents how responsible you are with your finances, so lenders may view a lower score as having more financial risk.

Credit scores can range from 300 to 850, with anything above 680 typically considered to be good.

Your credit score is impacted by a number of factors, including:

• Your payment history (whether you pay your bills on time)
• The amount of debt you owe compared to how much credit you have available
• The length of your credit history
• The types of debt you carry
• Credit inquiries and new debt
   

Understanding the factors that affect your credit score can help you make smarter money choices, strengthen your score, and build a solid financial foundation.

Good Credit and Good Debt Can Help Your Next Home Purchase

By building strong credit and managing debt responsibly, you can position yourself to receive a better rate and more favorable terms on your next home purchase or mortgage refinance.

Interested in learning more about how debt and credit interact? Contact me today, and I’d be happy to discuss your situation.