Many types of financial debt exist. Two of the most common are “Secured” and “Unsecured.” As you can imagine, secured debt is debt that is “secured” by an underlying asset. A mortgage is an example of this, where your loan is secured by the home you own. Don’t pay the debt for long enough and you lose the asset. “Unsecured” debt is, we’re sure you can guess, debt that isn’t secured by any particular asset. A credit card is an example of this, where you can borrow a certain amount from the credit card company without putting up anything in return.
Which is better? Well, we think it depends on what you use it for. A credit card that’s used properly is a great financial tool. You get a no-interest, short-term loan on someone else’s dime that you can build a credit score, score points for rewards, and if someone steals your card and outfits their closet with new clothes, you aren’t on the hook. That mortgage from before is secured against your house, and most institutions won’t give you a big loan unless there’s something they can have as collateral. A mortgage is great debt to have because it gives you a house to live in…which you need.
Debt can be a good thing if you know how to use it.