Good Debt v. Bad Debt

I study Business Finance at BYU.  Just like a business entity, before taking on debt your family should decide whether that debt is good or bad.

President Hinckley counseled to ONLY go into debt, if necessary, for two things: (1) a modest home, (2) education.  I believe his counsel is not just a "nice idea;" it is a commandment from the Lord for our temporal salvation.

Good debt--Businesses usually try to have at least a little bit of debt as good "leverage".  The idea behind leveraging up is that they are taking on projects that will eventually help them grow their revenues, and not that they take on debt to buy fancy desks or office art.  The same idea should go for your personal financial life. 

Pretty much the only good debt for personal finances is education.  Why? Because (usually) with more education, you are able to get a better job, get paid better, etc.  Education is one of the most important investments you will ever make, and not just in a monetary sense.  Try to get by as much as you can without it, but if you do need some education debt, be sure to have a sound plan to pay it off quickly to avoid the interest costs and get it off your "books".

Your home might also be good debt.  For most people, buying a home outright is somewhat impractical.  So long as you have a home that is modest for your needs, your debt is probably fine.  Keep in mind that bigger houses require more energy, more repairs, more maintenance, etc.  So if you go take on extra debt in order to buy a bigger house, remember that you will also have those added expenses in addition to a higher mortgage and/or interest payments.

Bad debt - Wow. I could go on and on about this one. The list is long: car loans, furniture loans, credit card debt, etc.  Pretty much all consumer debt is something to avoid like the plague.  If you let yourself get into too deep into it, the process to get out is miserable. Best advice: avoid it in the first place.
Car Loans - Discouraged by financial planners because they rapidly lose value.  So not only are you losing cash by paying a ton of interest with your car payment, but your personal net value (total assets minus total liabilities) is decreasing quickly as the car loses value. Be cautious. When shopping for a car, ALWAYS distinguish between WANTS and NEEDS.
Credit Card debt - Big no no.  Wherever possible, pay off your credit card balance in full every month. Interest rates are high because credit card companies know that it their cards make it really easy for consumers to get what they want, when they want it. It helps me to just pretend that my credit card is like a checking account and I can only spend the money that I really have in my bank account. Exercise self control.

If you are already in debt, stay tuned and I'll give tips on how to get out.