Good Debt vs. Bad Debt

When used intelligently, debt can be of tremendous assistance in building wealth. However, the word debt strikes fear in our hearts, mine included, because we’ve all heard stories about people getting into bad debt and bad thing have happened to them. However, I have just learned an interesting fact I’d like to share. There are two different kinds of debt.

There is actually good debt and there’s bad debt. Good debt includes important things that can really enhance your life or increase your value over time, but you just can’t afford to pay for up front without wiping out cash reserves or liquidating all your investments. Basically these include things like college loans, a mortgage or maybe even a business loan. And this good debt is something that you can definitely afford to make timely monthly payments on.

Bad debt, on the other hand, is debt you’ve taken on for things you really can’t afford, like going on expensive exotic and purchasing other things beyond your means. How do people get into these kind of debts? One of the primary culprits are credit card companies and sheer irresponsible money management.

The amount of personal debt in America and Globally is ever increasing, and a large part of the reason is that credit has never been easier to get. Previously, credit card companies used to issue credit cards to people who could repay them. Today card issuers relish the chance to reel in those who’ll continuously charge beyond their means at 18 or 20 percent. That to me is just wrong.

Credit and debt is definitely nothing to play with. It can work for you or against you. So be very careful how you handle and leverage your debt. Distinguishing between good and bad debt will enable you to afford the things you need in life – while steering clear of the debt “potholes” that are just waiting there to drag you down financially.

27 Replies to “Good Debt vs. Bad Debt”

  1. As long as you don’t let your debt accumulate to an unmanageable point, a little bit is fine. It’s good to use credit cards to build your credit but don’t max them out buying stupid stuff you normally can’t afford.

  2. I didn’t know that there are kinds of debt. I never looked at debt as a good debt before, I thought it was all bad debt. Well, bad debt can be avoided by tracking all your expenses in your credit card and by controlling yourself from buying things which are not necessary. As for the good debt, I think it is still confusing to consider a debt as a good debt because if I can’t pay my debt because of it’s increase,I think it may still be called a bad debt.

    1. Yes unfortunately all good things can turn bad. Like a bad business investment; a failed marriage or whatever…but that doesn’t mean it didn’t start off good. If you keep good management over your good debt (and over all your debt for that matter), it can work in your favor.

  3. Some people have a credit card addiction. Spending on credit what they cant afford on a whim. Causing bad credit. If you use credit wisely, and not over spend, pay your bills on time, etc. You can have good credit. Americans have to trust themselves to spend wisely. Even if cards are easier to get. Its a money trap if not used correctly.

  4. On my own opinion, it’s still better NOT to exercise having debts. You may need it so much at some point but be sure to use it intelligently and wisely or else, there would be chaos in your finance.

  5. Debt, even uttering the word is a bad thing. We shouldn’t indulge ourselves in any kind of debt. Cause if we do, that means we owe something to someone and when we cannot pay this debt things get messy and even turns violent. As said, we shouldn’t waste our money on expensive and out of our reach items by loaning money. But anyhow, if there is a debt, should pay it quickly and get the burden off your shoulders.

  6. Learning these differences are not so easy due to the temptations of buying things we’ve always wanted so to speak. It is nice to have them explained and the differences made here so as not to worry us about all debt in general.

  7. It will probably take time for many people to embrace debt as being good because it can enhance your value over time. Of course, it is still largely due to the fact that people do get in debt because of things they don’t need. When a person has learned to be disciplined about spending, then that will be the time he can understand there are good debts but like any debt, is something he can pay for on time.

    1. Well if you’re looking at it from just a “credit score” perspective, then I guess you would only see debt as all bad. But debt should be looked at from so many different angles than that in order to truly get it to work to your advantage.

  8. every successful business knows how debt works to build a business. It’s too bad we can’t teach that to individuals with their personal debt issues.

    1. Definitely true Ollie! In the business world it has been proven that debt (depending on how it’s used, handled and leveraged) can be used as a beneficial tool. Unfortunately, many of the same rules and privileges of business debt just don’t apply to the personal debt code, but yet & still, some ways of thinking about debt can still be applied in the personal debt world.

  9. I am in good and bad debt. My good debt = college loans, though I came out and was unable to find a well paying job in my chosen field. My bad debt = credit cards, jumping leases due to inability to afford rent. But where do medical bills land? Good or bad debt? Or maybe it’s neutral debt?

    1. Well Kylee, hopefully your college loans will eventually result in something that can “really enhance your life or increase your value over time”. Keep in mind that this is the key factor that makes it a good debt – not simply just because it’s a college loan.

      As far as medical bills, I’d consider them neutral because people tend to have no choice in this matter at all. Unfortunately, it’s just something that strikes the lives of some people and they just have to deal with it.

  10. This article is very educative. Most of us take debts without considering whether they are bad or good. Getting credit for all the wrong reasons and purchases. A good debt can be a good investment that can benefit a person.

  11. Its a fact that personal debt is on rise not only in America but globally. Using credit cards beyond ones means is one of the main reason for it. Its better to live within ones means and keep the cards for the emergency.

  12. Debt that you can pay back without too much trouble is good debt and you can avail of the things you really want and afford it too. You get into bad debt for getting credit that you can’t afford or unnecessary. Distinguish at first and avoid the bad debt like the plague.

  13. This is a great advice especially for teens! Some teens make huge debts for things that they want instead of things they really need.

  14. For me debt is debt no matter how nice one tries to paint it. If you can help it it’s best not to be in debt. But when you find yourself needing a loan, these tips will surely come in handy.

  15. I agree with you about the good and bad debt situation and also how credit card companies, banks and loan companies tend to entice people to buy things that they don’t really need and get them to take out unnecessary loans and things.
    Basically it is important always to work towards a budget especially if you are strapped for cash. This can happen when you lose your job or something happens to your business and suddenly you find that you are unable to afford all the things you used to. Then it is a critical time for you to take stock and cut out things that you don’t really need and only focus on the essentials like paying your rent, or mortgage, utility bills, council tax and any credit card and loans that you may have. I always find that going through this process will make you think more about the things that you spend on and are they worth it. Sometime not but at the time you needed them or wanted to.

  16. I had my first credit card at the age of 50 and just an extension of hubby’s cc. Quite a record and I must say that although I enjoy the convenience of paying with it, I also fear the repercussions. Spending beyond what I am capable of paying back or having my identity stolen are my worst fears as well as bankruptcy.

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