Like dark chocolate and red wine, a little debt may not be as bad for you as you think. In fact, it can work to your advantage if you manage it well and keep your IOU levels in check.

Now, that's not to say consumers should take on debt to leverage themselves foolishly, or to put off paying today what they will end up owing in spades tomorrow.

But there are some situations, especially in today's low interest-rate environment, in which manageable levels of debt may save you money in the long run, or at the very least not cost you much more than paying cash. In exchange, you may have more liquidity available to build your nest egg, keep your emergency reserves intact, and prevent yourself from running up high-interest credit card debt for lack of available funds.

Weigh Your Mortgage Options

Take buying a home. Most people can't pay cash for their house, but many want to pay it off as soon as possible. As eager as you may be to throw a mortgage-burning party, figure out the cost of having one sooner rather than later. Say you can get a $200,000 mortgage at a fixed rate of 7 percent. If you pay it off over 30 years, you'd have a monthly payment of $1,331. If you pay it off over 15 years, you'd pay $1,798 a month, or $467 more. Certified financial planner Jill Gianola of Columbus, Ohio, argues you might actually save more money over time by choosing the 30-year option. Here's how:

Now let's say you chose the 15-year mortgage. Since you don't have that spare $467 to invest every month -- it's going to your lender -- you begin investing the day your mortgage is paid off and you invest an amount equal to your old mortgage payment ($1,798) every month for 15 years. You end up with a nest egg of $622,000, assuming an 8 percent annual return. That's $74,000 less than if you had chosen the 30-year option.

While it's true that you will pay more in interest on the 30-year loan (about $155,500 more), you have to invest far more of your own money under the 15-year scenario (about $155,500 more) just to achieve that $622,000 nest egg. "The calculations [for the 30-year scenario] assume you pay all that interest and you'll still be $74,000 ahead," Gianola said.

She also calculates the 30-year mortgage would give you an additional $17,000 in tax savings in the first 15 years of payments compared with the shorter-term mortgage. That's because more of your payments in the early years of the 30-year mortgage would be going toward interest, which is deductible.

Keep in mind: For this scenario to pay off you need to be religious about making your monthly investments and have the risk tolerance to invest in a portfolio that has the potential to throw off 8 percent a year, said certified financial planner Joel Framson of Los Angeles.

Minimize What You Pay

Unlike the home-buying scenario, it's easier for some people to pay cash for a car. But doing so may mean you pay a higher price for your wheels. Dealers may charge a premium for cash purchases since they tend to make more money on financing deals. And even though 0-percent financing deals are no longer ubiquitous, there are many rock-bottom rates to be had, some as low as 0.9 percent. So if you can find one -- a good place to check is the Incentives and Rebates page at Edmunds.com -- you might be better off keeping your cash reserves liquid and earning interest on them while your car depreciates in value, a process that starts as soon as you drive off the lot.

Student loans are an even better example of "good" debt, since those college and graduate degrees can boost your salary and the loan interest you pay is often deductible. In fact, there's never been a better time to take out a federal student loan. Come July 1, the variable rate on the federal Stafford and PLUS loans will hit all-time lows that will remain in effect through June 30, 2003. Those who already have student loans might do well to pay down their highest-rate balances and consolidate the rest into one low, fixed-rate package. If you can lock in the historic low rates for the remainder of your loan, you may save yourself a great deal in interest payments over time.

Article continued at http://money.cnn.com/2002/06/18/pf/banking/q_perfectdebt/index.htm