Attitudes toward credit and debt can be a major source of friction in a marriage. If you've grown up in a family that regarded any form of indebtedness as something to be avoided at all costs, you'll be frustrated with a partner who blithely whips out a credit card at the drop of a hat. That being said, debt can be used constructively. Most financial advisers frequently deliver a well-honed set speech about the differences between good and bad borrowing.
Generally, consider a debt "good" if it provides a benefit that outlasts the payments. Some investments are simply too large for people of average income to reasonably save for, such as a home or a college education. Those are good debts, because the rates are usually low, and they lay the basis for your future. Another example of good debt might be a low-interest loan used to purchase a high-return investment. Here, the benefit outweighs the cost. Taking a loan to cover emergency costs or medical expenses is also good debt, because it prevents you depleting your other financial reserves.
Bad debt is the flip side of the borrowing coin; the kind of debt your mother warned you about. These are debts that cost more than you can readily repay, whose costs outweigh their benefits or that are incurred for non-essential purchases. High interest is a common symptom of bad debt. Credit cards, in-store financing offers, payday loans and high-risk car loans all charge high rates of consumer interest. Taking out hefty loans to buy non-essentials that depreciate, such as a boat or an RV, can also be considered bad debt
It's a Fine Line
Sometimes the line between good and bad debt can be rather blurred. For example, taking out a loan to get a minivan after your kids are born isn't a bad debt. Taking out a loan to buy an exotic sports car after your kids are born probably is. By all means, use your credit card to buy medicine for the kids when money is tight. However, if you're maxing that card to pay for your utilities, you're almost certainly in over your head. Often, that's the most reliable way to differentiate: any debt you can't afford to pay is bad.
How Much is Too Much?
For many couples, it's hard to see that line approaching. You probably had perfectly good and valid reasons for each loan and each purchase, but, suddenly, you're having trouble with the payments. If your payments add up to 30 to 40 percent of your gross income, it's time for professional help. Talk to an accountant or fee-based financial planner. It will cost money you desperately need for other things, but a good professional can help you dig out of trouble faster than you would on your own. They'll also give you the help you need to stay out of trouble in future.
Fred Decker is a trained chef and certified food-safety trainer. Decker wrote for the Saint John, New Brunswick Telegraph-Journal, and has been published in Canada's Hospitality and Foodservice magazine. He's held positions selling computers, insurance and mutual funds, and was educated at Memorial University of Newfoundland and the Northern Alberta Institute of Technology.