On Apr 30, 12:21 pm, jIM <noreplysoc...@[EMAIL PROTECTED]
> wrote:
> > ...
> > The moral of the story is that certain debts do get a tax deduction
> > which makes employing them more advantageous. However, the terms of
> > the debt will play a much larger factor in determining whether it is
> > "good" or "bad" debt.
>
> Good debt vs bad debt- there appears to be a gray area in interpreting
> good and bad (what is the definition of good?).
>
> My understanding is that mortgage debt is not good because it is tax
> deductable, it is good because the asset the debt was used to secure
> goes UP in value over the life of the loan. Car debt is not bad debt
> because it is not tax deductable, car debt is bad because the value of
> the product the loan was used to secure has decreased in value at the
> end of the loan term.
>
> The fact the mortgage interest is tax deductable is icing on the cake
> relative to the appreciation of the house itself, which is the real
> profit from the good debt.
I agree that the tax deductibility doesn't define good or bad. As you
said, it's "icing on the cake". "Good" and "bad" are surely relative
terms, but I don't agree that the ending value of the asset relative
to the loan expense defines good or bad either. I consider it to be
merely a consideration also.
Back to the car example... suppose I live in an area with no access to
alternative trans****tation (buses, taxis, subways, commuters, etc...).
Furthermore, suppose I could work from home and earn $50k a year, or
take a job working from an office 15 miles away and earn $100k a year.
So by purchasing a modest vehicle, under reasonable terms, I
relinquish some money to the interest gods, but in the end make
significantly more. If I were in that position I would feel my
investment (the car) was a smart one. Do you disagree? I can imagine
this scenario to be quite common among recent college grads.
Now if I managed to find a car that APPRECIATED in value that would
just make the investment that much better ("icing on the cake").
In the end, I think the determinants for "good debt" and "bad debt"
are highly case specific. But in general (and as I said earlier), if
the loan yields more than it costs, it's a "good debt".
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