There are different reasons why people go into debt. Not all debt is bad – using credit wisely and taking on the right kind of debt makes all the difference. Increasing your wealth ultimately means building assets and paying off debt. But in order to buy many assets you may need to borrow.

Some debt is good.

Borrowing to buy a home or go back to school, for example, is usually a very productive kind of debt. You will usually be able to sell your house for at least the value of loan after you pay it off, possibly more. Student loans are an investment in yourself to build your long term earning power. You can also deduct or subtract the interest you pay on your home mortgage and student loans on your tax returns.

Debt is also useful for those things you need, but can’t pay cash for. Even though cars lose their value while you are paying off the car loan, most people need them to get to work. Major appliances are also expenses that many people just need and can’t wait for their savings to build up to buy them. For these items, make sure your loan doesn’t outlive the lifetime of what you are buying. You don’t want to be making car payments after a car has stopped running.

This principle works for other items as well. Consider how long you will be using the item when deciding whether to pay cash or credit. Can you save up for that stereo or those clothes or do you want to pay for them over time? Paying over time can be more convenient, but you’ll end up paying more.

Warning: Not all debt helps build a better future. Payments with a high interest rate, especially when you are buying many things that lose value after you buy them, can hurt your financial future.