Debt itself is neither good nor bad - it's how you use it that counts. "Good debt" is a loan that represents an investment in your future. Here are some examples:

• Student loans that help you get an education - easily one of the best investments you can make.
  
  
• Loans that are used to purchase an asset that may increase in value, such as a home or investment property.
  
  
• RRSP catch-up loans - to maximize your RSP contributions and taxes. Tip: Use the resulting tax refund to pay back the loan. It makes for a powerful one-two combination.
  
  
• Loans that are used to earn investment or business income that can make the interest tax-deductible.

Now consider debt that compounds and provides no future benefit; in other words, "bad debt." Here are some possible examples:

• Taking cash advances on your credit card, as interest is charged from the day of the advance.
• Borrowing money to purchase a luxury item that has little or no future financial value to you or your family.

Borrowing strategies

The key to making debt work for you rather than against you is to be proactive. Here are some effective strategies to explore:

• Pay down expensive debt first. In order to borrow wisely, you should first reduce or pay off high cost debt. Let's say you have some money set aside in a low-interest savings vehicle but you are carrying a balance on a credit card that charges 18%. It may make sense to use some of those savings to pay down the debt.
  
  
• Consolidate to save money. If you find yourself struggling to pay down expensive debt, consider taking a line of credit to consolidate your borrowing at a lower overall rate. You'll save a bundle on the interest charges, and it'll be easier to keep track and take control of your finances.
  
  
• Use savings and cash for lifestyle needs. If you need a vacation, it's wise to use any savings you have accumulated to pay for it rather than going into debt. Better yet, plan ahead by creating a separate "vacation" account and adding a little to it each month.
  
  
• Evaluate your credit purchases. Before buying on credit, think of how long it will take to pay off the item. Is it going to cost you significantly more over time when you factor in the cost of borrowing?

Do you know what your credit report says about you? A key strategy to smart borrowing is having a recent credit bureau report. You can get one online.

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