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Is It Good Debt or Bad Debt?

by Spencer Tierney 29. October 2014

Empty Wallet

Most people borrow money at some point in their lives, but many may not realize that having the right kind of debt – and paying it off as promised – can show money management smarts rather than poor spending habits. Here’s how to sort the good from the bad when it comes to owing money.

What is good debt?

Think of good debt as an essential element to making substantial purchases you can’t otherwise afford now but should help you produce value later, such as paying for college or a major business expense. In the long term, this borrowing is worthwhile because of its anticipated future benefits. Here are some more examples:

Mortgages
A mortgage is a necessary debt for most people who want to own their own home. It’s considered smart debt because a house will likely appreciate in value at a faster rate than the interest on the loan. Additionally, the interest paid on a mortgage is usually deductible from income for federal tax purposes, which effectively reduces the cost.

Borrowing for Business
Financing a business with a commercial loan is smart because it probably will generate increased value for the operation. The money needs to be used to improve products and services offered, or in other ways that will grow the company.

Student Loans
Paying for an education is one of the best ways to invest in yourself. Taking out loans is considered good debt on the assumption it will produce a lifetime of benefits by equipping you to qualify for better jobs that result in higher income. But make sure to not borrow too much.

What is bad debt?

Bad debt, on the other hand, doesn’t increase your wealth over time and often comes with a high interest rate. It’s the type of borrowing frequently used to pay for things you don’t really need. Some examples of bad debt are:

High-Interest Credit Cards
Credit card balances and the resulting interest are considered bad debt because there’s no anticipated gain. In fact, if balances mount too high or interest rates rise, it can quickly turn into a vortex of financial difficulties.

Payday Loans
This form of very short-term borrowing is described as a debt trap by the U.S. Consumer Financial Protection Bureau, partly because of the high fees and the checking account access given to the lender. If you can’t pay right away, the fees can quickly become exorbitant; the average annual percentage rate for a payday loan is about 400% and can run as high as 5,000%. And most people who use them can’t pay them off on time and must refinance repeatedly, according to the government agency. It’s easy to get into a big financial pickle with payday loans, so they are best avoided.

Not every form of debt will fit neatly into “good” or “bad” categories. For example, a car loan may be smart if you get a low interest rate and can pay it off while you still own the vehicle, particularly if having the transportation means you can get a better job. It’s bad debt, though, if the amount borrowed and the interest rate are so high that payments will probably continue long after the car is gone. The key thing to consider is whether the purchase being financed will gain or lose value over the long run.

Spencer Tierney is a staff writer for NerdWallet, where he covers all aspects of personal finance.

If you found this article useful, be sure to check out these related articles:

Consolidating Your Debt: Why It's Important and when to Consider It

Establishing Credit for Beginners

Debt to Income Ratio: What It Is, and How It Helps (or Hurts) Your Chances of Getting a Loan

How to Prevent Your Teenager from Distracted Driving for Free - The Drive Safe Mode App

by Erica Starr 15. October 2014

Drive Safe Mode App

Every day, thousands of people are injured or lose their lives to distracted driving. According to the Maryland State Highway Administration Safety Information Database, 231 people lost their lives and 29,050 were injured in distracted driver-involved crashes in 2011 alone. Nationally, distracted driving is a factor in 1 out of 4 vehicle crashes and at any given daylight moment, approximately 660,000 drivers are using cell phones or manipulating electronic devices while driving, a number that has held steady since 2010. (NOPUS)

After seeing the above statistics, the question you should be asking yourself is could YOU or YOUR NEW YOUNG TENNAGE DRIVER be one of them? While the dangers of distracted driving are no secret, the best way to prevent these unsettling stats from increasing is communication and education. Do you talk to your teenagers about the risks of texting and driving? Of course you do…but wouldn’t it be great if there was a way for you to physically prevent your child from taking that call while behind the wheel?

Wait no longer parents.

We present to you... (insert triumphant trumpet music)

The Drive Safe Mode App.

While we’ll be the first ones to tell you that our Mobile Banking App allows you to bank from anywhere at any time, there is one place that we would rather you not…while driving. As a matter of fact, if we could figure out a way to shut down our mobile banking app while you were driving, we would. As it turns out, someone figured it out for us. 1st Mariner Bank has teamed up with FOX Baltimore to help fight the battle against distracted driving by helping to promote the Drive Safe Mode App that is available for both Androids and iPhones. This app was created by a parent concerned with his own addiction to distracted driving. This addiction not only included texting, but also emailing, checking Facebook, browsing the Internet, checking sports scores, playing games and using any and every application on his phone.

Some of the App's features include:

  • Prevents texting, banking, emailing and other distractions while driving.
  • Push alert warnings if shut off while driving.
  • Blocks phone usage within a few seconds of vehicle moving.
  • Configurable to allow calling parents while driving.
  • Configurable to allow navigation apps while driving.
  • Configurable to allow music apps while driving.
  • Ability to deliver speed alerts for your vehicle.
  • Proactive alerting and reporting if user tries to disable.

While the App is is available for both Android and iPhone devices, the features and functionality vary slightly for each operating system. Click here to see a features comparison.

So how does the Drive Safe Mode App actually work? (Hint: You're gonna love this.)

Once a certain MPH is reached, essentially all functions of the phone are disabled except the ability to call 911 and/or any preset emergency phone numbers set up by the account holder (i.e Mom & Dad).

Here is a demo of the Drive Safe Mofe App in action on an iPhone.


What if my child tries to use his or her phone or delete the app? (Hint: Mom will know everything.)

In any instance that one attempts to use any non-emergency functionality of his or her phone or deactivate or delete the app, the account holder will receive a notification via text or email.

Ready to take action?

Download the Drive Safe Mode App on your teenager's phone today.

Want more info?

To see additional FAQs or get more info, check out the Drive Safe Mode site here.

The Scary Cost of Halloween

by Sara Seeger 14. October 2014

Ghosts, goblins and witches aren't the only thing to fear as October 31st inches closer. The amount of money Americans spend on Halloween is enough to give anyone the spooks! Check it out...if you think you can handle it.

The Scary Cost of Halloween



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