Good Debt vs. Bad Debt (And Why It's More Complicated Than That)
You've probably heard about "good debt" and "bad debt." But the labels are too simple.
The traditional view:
"Good" debt: Mortgage, student loans (investments that grow your wealth or income)
"Bad" debt: Credit cards, payday loans (high interest, no asset)
The more nuanced truth:
- A mortgage you can afford: Good
- A mortgage you can't afford: Bad (see: 2008 financial crisis)
- Student loans for a high-paying career: Good
- Student loans for a degree that doesn't lead to income: Complicated
- Credit card debt at 24%: Bad
- Credit card paid in full monthly: Actually great (rewards, credit building)
What actually matters:
- Interest rate: Lower is better, always
- What you get for it: Does this debt help you earn more, gain assets, or just buy stuff?
- Can you afford the payments: Debt you can manage isn't a crisis
The real question:
"Can I comfortably make these payments while still covering my other expenses and saving something?"
If yes: The debt is manageable
If no: The debt is a problem, regardless of the category
WHAT TO DO TODAY:
- List your debts
- For each one, note: interest rate, what it got you, can you comfortably afford payments
- Focus less on whether it's "good" or "bad" and more on whether it's manageable for YOU
