New Strategies for Smart Borrowing

Rising interest rates and new tax rules mean taking a different approach to how you shop for loans and manage your debt.

Business man displaying a spread of cash over,spending money or profit from business operations concept
(Image credit: Getty Images/iStockphoto)

A lot of financially savvy people make a distinction between good debt and bad debt. Good debt is used to finance goals that will improve your net worth—such as a home purchase, a college education or a small business. Good debt is even better if it carries a low interest rate and is tax-deductible. Bad debt is the kind you incur to buy things you can’t afford with your paycheck—the big-screen TV you put on a credit card or the Caribbean trip you paid for with your home-equity line of credit. In some people’s book, it’s a bad idea to borrow to buy any depreciating asset, including a car.

But even good debt turns bad when you overindulge, as happened in the years leading up to the financial crisis. The bursting of the housing bubble and the stock market bust forced many Americans to go on a debt diet, and in the last decade, even though credit has been historically cheap, we’ve been pretty careful borrowers. Household debt has increased since the Great Recession, but that’s largely a desirable side effect of the strong economy and a healthy relaxation in lending. Mortgage balances have been rising (although they are still way below the peak reached in 2008), and student-loan, auto-loan and credit card debt levels have also gone up.

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Miriam Cross
Associate Editor, Kiplinger's Personal Finance
Miriam lived in Toronto, Canada, before joining Kiplinger's Personal Finance in November 2012. Prior to that, she freelanced as a fact-checker for several Canadian publications, including Reader's Digest Canada, Style at Home and Air Canada's enRoute. She received a BA from the University of Toronto with a major in English literature and completed a certificate in Magazine and Web Publishing at Ryerson University.