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A Supplement to The Alpena News • Thursday, January 27, 2022
Explaining the concept of “good debt”
Debt is a four-letter word, and in many instances, a high amount of debt is perilous. However, debt isn’t always a black mark on individuals’ financial résumés. Consumers may have heard the term “good debt” at some point and wondered just why owing money to certain creditors is more desirable than owing to others. The debt help experts at Debt.org note that there’s
a simple explanation for this distinction. Debt that increases an individual’s net worth or future value is considered “good debt,” while debts that do not positively affect net worth are considered “bad debt.” So which types of debt qualify as good debt? The following are three types of debts that generally qualify as good debt.
1. Student loan debt: Student loan debt can be tricky, but it’s generally considered good debt. That’s because education has long been linked to a greater earning potential. Data from the U.S. Bureau of Labor Statistics indicates that individuals over 25 who were working full-time and only had a high school diploma had a median weekly income of just under $800. Individuals who had a bach-
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elor’s degree had a median weekly income of more than $1,400. However, it’s important that individuals recognize that certain degrees do more for their earning potential than others. Taking on a high amount of student loan debt to earn a degree in a historically low-earning field could make it harder to make ends meet down the road. That won’t necessarily make the debt “bad” in the eyes of lenders, but it could force borrowers to wonder if they made the right decision. 2. Mortgage debt: Mortgage debt is perhaps the most undeniable source of good debt. Historically, the appreciation value of real estate has made home ownership a worthwhile goal, even if home buyers have to finance their home purchases with bank loans. Perhaps nothing has more successfully illustrated the value of home
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____________________________________________ 2 - Money Matters ~ Thursday, January 27, 2022
ownership in recent years more than the skyrocketing value of real estate during the pandemic. The real estate research firm CoreLogic noted that home prices across the United States increased by 18 percent between July 2020 and July 2021. Individuals who already owned their homes, including those who were a long way from paying off their mortgages, saw their equity rise considerably in that time period, even if they continued to make the same monthly payments they’d been making before the pandemic. Though home prices may never again rise that much in a given year, real estate historically has increased in value on a yearly basis. That certainly qualifies mortgage debt as “good debt.” 3. Business loans: A business loan may carry more risk than a mortgage loan, but it still can turn out to be very good debt if the busi-
ness ultimately succeeds. However, that’s a big “if.” Data from the BLS indicates that 65 percent of new businesses fail within a decade of opening. Many small business owners use personal guarantees to secure business loans, meaning the debt is theirs should the business ultimately fail. But owning a successful business can be a great way to build personal wealth, which is why business loans can be considered good debt.
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Just 5% Can Change Everything for the Better Northeast Michigan is in the process of losing billions of dollars. Billions. It has already been happening for over a decade and by the year 2060, nearly $17 billion will be passed from one generation to the next in what is commonly referred to as the “transfer of wealth”. Preserving just 5% of that could mean a world of difference for northeast Michigan’s future. Most often, assets are left to family. For generations people lived their whole lives close to where they were born, and as money and material possessions passed from one generation to the next, those assets stayed in the same place too. The world has changed though. We are more mobile. Kids move away more often. Jobs can take people away from this community. And as Baby Boomers age and pass their assets to heirs, those assets may never return. If you think you are not part of the transfer of wealth, consider this: If you own a home, even one you still owe money on – you have an estate. If you own a car – you have an estate. If you have an IRA, 401K or life insurance - you have an estate. If you have an impressive collection of unopened Cabbage Patch dolls from the 80s – you have an estate. All of these things have monetary value. It is not just those with huge investments, multiple life insurance accounts or retirement funds who need to be thinking about what happens to their possessions and assets when their time on this earth is done. We all do. If every person in northeast Michigan set
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aside 5% of what they have to stay locally in permanent charitable funds, by 2050 (when there’s still a decade left of the transfer of wealth), it would mean $42 million could be given out in grants annually. Even if you choose not to have your 5% be a permanent gift, you can still direct it to a local charity and affect the good of your community. It is another 5% that does not leave the place you call home, and it is not uncommon for a charitable planned gift to actually help you leave more to your heirs than you would without that donation. So, what can you do to preserve 5% of your assets for good? Talk to a favorite nonprofit’s staff and see how a planned gift could best be used for them; create or tweak your current will; re-designate an insurance policy or retirement account to a charity; consider your own legacy and what that might look like; contact a financial planner or local attorney to get some advice; or contact a local foundation whose staff can help with planned giving. If just 5% can ensure a bright future for northeast Michigan, we should take every opportunity to make it a reality.
What you care about most is worth supporting forever. Make your charitable gift keep giving back for generations to come. Learn more at cfnem.org or call 1-877-354-6881.
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____________________________________________ 4 - Money Matters ~ Thursday, January 27, 2022