First Person: Do I Have Healthy Debt?

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As a rule, I don't think any debt is good debt. However, I am willing to admit that there are some situations when the logical benefits of financing wins out over the emotional benefits of feeling free of debt. I recently read a Motley Fool article about having a year-end debt checkup to determine whether I have healthy debt. It turns out that consumer debt in America hit an all-time high in October when borrowing rose to $2.75 trillion, which was $14.2 billion higher than the previous month. Only about a quarter of the gain reflected an increase in credit card borrowing, while most of it can be attributed to car and student loans. When I look at my own debt, I carefully consider whether it's helping me achieve my goals now and in the future or whether it's holding me back.

Giving myself some credit

Some people complete ignore the interest rate on a credit card, especially if they are offered a special deal that allows them to pay no interest for the first six months. I got rid of my credit cards with high interest rates about 10 years ago, after paying off the balances. I had some credit cards with interest rates as high as 19 percent. For me, the only healthy credit card debt is the debt that isn't revolving debt. In other words, I pay off my balance every month so that I am not charged any interest.

Taking advantage of historic lows

I never could have become a homeowner if it were not for the mortgage I was able to take out. It's not realistic for most people to be able to save up cash in order to purchase a home. With interest rates as low as they are, all most all mortgage debt is healthy debt. I wouldn't consider mortgage debt healthy, however, if I were retired. I will have my mortgage paid off by the time I retire. I am pleased that I can refinance my home right now at a 2.75 percent interest rate. Since I won't be retiring anytime soon, it makes sense to take the full 15 years to pay off the 15-year mortgage. However, if the rates on mortgages ever climb back to 13 to 20 percent as they did in the 1980s, I'd rather be a renter.

Protecting my greatest asset

Since my home is my greatest asset, I don't want to risk it by having any debt from a home equity loan or Heloc. My bank told me that if I decided to take out a Heloc, they would use my home to secure the loan. For me, the goal is to pay off my mortgage so I can have more cash flow when I'm older. Taking out a Heloc wouldn't help me get closer to my financial goal. I don't ever plan to have a Heloc.

Financing a car

When it comes to financing a car, I consider the interest rate as well as my budget. My husband and I decided to finance only one car at a time so we all of our cash flow isn't stopped up by too many car payments. Unless I can obtain an interest rate that is lower than my mortgage interest rate, I would rather pay cash for a car. Because a car is needed to get to work, I consider it healthy debt as long as the interest is low. We don't plan to purchase another car for three years.

I'd like to believe the increase in borrowing in our country is good for the economy. However, cars are so overpriced that people are probably forced to borrow more money to pay for their vehicles to get to work. As a parent with two children in college, I know college is extremely expensive. I have to buck some of the consumer trends and avoid taking out student loan and credit card debt that isn't healthy for my personal finances.

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More from this contributor:

My Life After Debt

3 Stupid Moves I Made to Get out of Debt

Reaching my Debt Set Point

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