It is easy to point to debt and blame it for the money problems that plague Americans today. After all, 1.66 million people filed for bankruptcy last year, proof that some people cannot handle debt. To blame debt for America’s money problems would however, be short-sighted and inaccurate.

The reality is that debt is both good and bad.

Good debt allows people to buy things they could never otherwise afford. Good debt, managed properly and paid back in full and on time includes:

• Car loans
  An automobile loan is generally considered good debt as long as you don’t buy more car than you need or can afford. Car loans make it possible for people without significant savings to buy a vehicle that will take them to work or school. The loan is good debt as long as you can make the payments and continue living comfortably.

• College loans
  Debt incurred to finance college allows students to get the education they need to secure a job that will pay more than minimum wage. Few students could afford a two-year diploma program, let alone a Master’s degree, without educational loans.

• Mortgages
  Few people could afford to purchase a home if it were not for mortgages. Today, interest rates are low and homes are appreciating steadily, making mortgages an even better form of “good” debt. Just don’t buy more house than you can afford.

• Debt to establish credit
  If you incur no debt, your credit rating may be poor, making if difficult to qualify for credit if the need should arise. To establish credit, apply for a credit card, make small purchases and pay the bill off promptly.

• Debt for investments
  Another type of debt that is often considered “good debt” is debt incurred for investment reasons. When interest rates are low, it may make sense to take out a low-interest loan and use the money that is making only minimal interest to purchase an investment that earns more.

• Home repairs and improvements
  Taking on debt to finance essential home repairs is often a financially responsible way to take care of what is likely your largest asset. Banks will often allow you to refinance your mortgage and incorporate the extra debt into your mortgage. This will make the interest on the debt tax deductible.

Bad debt, on the other hand, is debt incurred to buy things we don’t need and/or can’t afford. Things like useless electronic gadgets; new televisions – when the old ones work just fine; furniture – when the old furniture was not worn out; or exotic holidays that were not planned or budgeted for.

Before you make your next credit purchase – make sure you know whether it is a good debt or a bad debt purchase. Being aware of the differences will help you to control your financial future.