"Good" debt and "bad" debt are subjective classifications. Unsecured, secured, revolving, fixed principal, insterest only, it doesn't matter. If you owe money you owe money, no matter what for. Debt is debt. Period.
Actually, I'd tend to classify 'good' debt like a business would - will borrowing this money enable me to earn enough to more than cover the payments? Then borrowing money is the correct decision. Bad debt is just the opposite - it's not going to enable earning enough to cover the payments.
Consider this: You spend $10k or so to purchase a set of tools used to run your shop. The tools are at least as durable as a car, and without them you cannot use your skillset to make money. With them, you can.
Generally speaking, that would be a 'good debt', much like a vehicle used to go to work or a house to live in. Without someplace to live, you can't maintain yourself (easily) in a condition to keep most jobs.
On the other hand, racking up $10k in CC debt that you're not paying off anytime soon for a vacation is bad debt. It's not only a higher interest rate, it's not something that can be used to gain more wealth.
This is a seperate issue from conserving money - IE buying the used car instead of new or selecting an smaller, older house.
I see people freak out over a few thousand in credit card debt but then have no trouble signing a six or seven year note for a $50,000 car. These are the people who pride themselve in having no credit card debt but are in the red when it comes to net worth. That's insane.
Agreed. Still, as long as things go well they'll eventually have positive equity in the vehicle. Meanwhile, especially if they're not a car person, at least they have a warranty on the vehicle.
By the way, if you don't consider a morgage debt because "you have to live somewhere" I suggest you learn to use a calculator. Just because your mortgage payment and your rent payment are the same does not make them equal. Aside from a rent payment you have no financial obligation. Aside from a mortgage payment you still owe the bank the remainder of your principal balance. It is still a debt. Sure, you can recover all or most of it if you sell the house, but it's still a debt and it's still owed. You still put it in the "minus" column when you figure your net worth.
By the same token, you're allowed to put the house on the asset side of the scale. Assuming sane loan terms, you'll have at least some equity there in a few years.
You don't get a handle on debt by classifying it into submission. You get a handle on debt by systematic reduction and eventual elimination. And you don't do that by ignoring one kind of debt and freaking out over another. The best way to control debt is by not having any.
I'm aiming to be debt free eventually, but consider this: The interest rate on my home loan is 4.75%. If I can get a government bond for, say, 6%, which makes more sense: buying the bond or paying down my mortgage?
Heck, what if I have investments that make a risk adjusted 8%?
On a similar token, my discover card has a 1% cashback(discounting other special offers). I pay no interest if I pay the balance off in full each month. Therefore my strategy is to charge everything to the CC, then write a check* in full each month. Effectively, I have a -1% interest rate on my rought average of $1k revolving debt. Meanwhile I have the money in my accounts, I could pay by cash or check if I wanted to. Heck, debit card.
Should I cut my CC up to be 'debt free'? Not get that 1% back?
Save up a little and buy cash instead of buying now on the "no payments until 200-whatever plan." By a little less instead of a little more. Figure the long-term costs of potential debt instead of only looking at it in monthly-payment terms. In other words, use your head.
Well, I'd go to a different store that doesn't offer that, because when I did so I discovered the 'no payments' furnature place had prices that started 3X as high as the place that didn't offer credit.
Oh yes, you want to figure total costs - but I wouldn't forget 'cost of capital' either - If your investments are making 10% and the car loan would be 4%**, then the smart idea is to let the investments sit while you take out the loan for the vehicle.
*Well, to be honest it's an electronic transfer, but you should get the general idea.
**And you can't argue down the price of a 'cash deal' to compensate
