• Matt Davis

Managing Debt and Credit

"Good" debt is still debt

The best type of debt has low, fixed interest rates and potential tax advantages. But as with all debt, avoid taking on more than you can comfortably repay, and be sure you fully understand the terms of your loan before you sign up. If you have to take on debt, we recommend that you consider these options:

  • Mortgages and home equity lines of credit (HELOC) allow you to deduct the interest on mortgage debt of up to $1 million on your primary and secondary residence, whether the loan is for a purchase or for improvements.

  • You can also deduct interest on up to $100,000 of a home equity line of credit, for any purpose. Be sure to check with your tax advisor, as the alternative minimum tax may apply.

  • Student loans offer comparatively low rates, and the interest may be tax-deductible.

Types of debt to avoid

For most people, debt is what allows us to purchase a home, buy a car, or help pay for a child's education. However, certain types of debt can be detrimental, so you should generally try to avoid them.

  • Debt that carries high interest rates (such as credit cards) and results in your paying significantly more than the original purchase price

  • Debt that is used to purchase a depreciating asset (such as a car), in which case you're immediately losing money on your purchase

Source: Charles Schwab “Managing Debt and Credit”

#CharlesSchwab #taxsavings #CreditCards #debt

DISCLOSURE Information on this website and others should be used at your own risk. Past performance does not guarantee future results. Securities investments involve risk; returns in such investments vary and may involve gain or loss. The materials and content herein are not a substitute for obtaining professional tax, personal financial planning, or other relevant financial advice from a qualified person or firm. For full disclosure click on the disclosure link at the bottom.

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