Good vs. Bad Debt

- Hi, I'm Jean Chatzky, and this is your Savvy Money Minute.

- [Narrator] Brought to you by Credit Union of Southern California.

- Recent statistics show that average credit card debt per indebted household is just over $16,000. But it turns out, some debt is good. It's important that you know the difference, so here are the rules. First, debt for a want, not a need, is bad debt. That third or fourth little black dress? Something you should only buy with cash. But paying off a new refrigerator over a few months to replace a broken one? Well that could be good debt. Second, good debt is about progress. A mortgage on a home, for example, can mean you're building home equity. A loan for a car can help you get to and from work. And finally, third, debt boundaries. To keep those good debts good, stay within healthy limits. Example, keep your mortgage payments below 28% of your income, and all types of debt combined below 36%. So, save up, spend savvy, and borrow even savvier. I'm Jean Chatzky, for Savvy Money.

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