7 Tips for Debt Management

Good debt is traditionally defined as borrowing to pay for something that appreciates in value, such as a home, business or college education. But does it really have to be a good debt or bad debt? Instead of viewing debt in black and white -- as good and bad, perhaps it should be thought of as bad debt and better debt, says Tim Maurer, vice president of Financial Consulate, a Baltimore financial advisory firm and co-author of "The Financial Crossroads." "I don't think we should be romantically embracing any form of debt," he says. Still, there are ways to keep good debt in check and to use bad debt's powers for good. Here is a strategy for taking advantage of good debt.

Even though banks are squeezing their mortgage loan limits, it's still possible to take on too much house. Don't be tempted into borrowing the full mortgage loan amount that the bank offers, Maurer says. Most mortgage companies will let you take out a mortgage loan equal to 30 percent to 35 percent of your monthly budget, and he advises keeping those costs below 25 percent. Maintenance, property taxes and homeowners insurance costs also should be factored into your housing budget, says Nessa Feddis, vice president and senior counsel for the American Bankers Association in Washington, D.C.

The two decades leading up to the mortgage crisis saw a loosening in down payment requirements for mortgage loans, from a standard of 20 percent to as low as zero down. There's a reason those requirements were there in the first place, and why they remain a sound idea, Feddis says. "Down payments show you've got skin in the game. They also show that you can better withstand downturns in the real estate market, which invariably happen," she says.

Often an undergraduate degree is the permission slip for employment. But where you earn that degree can mean the difference between an annual tuition of $60,000 for an elite private school and $5,000 for in-state institution, Maurer says.

"Education is priceless, but a college degree is not," he says.

A more expensive education may not equate to a higher salary, especially if you enter a lower-paying field, Maurer says. Know the salary ranges for the profession you want to enter and make your college choice based not only on what you can make but also on what you can afford.

"If you want a degree in social work, you shouldn't go to Harvard to get it because you're not recouping your investment," he says.

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