Good Debt vs. Bad Debt - Borrow Smarter

We all heard of Good debt, and Bad Debt, but what is that all about? In this blog we will break that all down so you can make better debt choices, make your way into wealth.

What Is Debt, Really?

Debt is money borrowed with the obligation to repay, typically with added interest. At its core, debt is a financial tool — and like any tool, it can be helpful or harmful depending on how it’s used.

Here’s the catch:
Not all debt is bad.

Some types of debt can actually help you build wealth, boost your income, or increase your net worth. Others, however, can trap you in a cycle of payments, drain your finances, and delay your financial goals.

The key is understanding the difference — and using debt intentionally.

Is Debt Evil?

Think of a knife, that can cut you the best shapes of your favorite fruit, or can cut your skin and cause pain, let me explain further:

Some forms of debt can actually make you wealthier over time — increasing your income, net worth, or both. Others, unfortunately, drain your resources and offer little to no long-term value.

Taking a credit card to buy your favorite car or luxury products is Bad Debt but getting a credit card to invest it even in an Average ROI is a Good Debt

That does not mean that any Good debt is actually good Debt, if you borrow with astronomical interest rate to invest is Bad debt, or if you have unrealistically high monthly payments is a Bad Debt.

Types of Good Debt (With Examples)

Mortgage Debt

For most people, a mortgage is the largest loan they’ll ever take. It’s often considered good debt because:

You build equity: Unlike rent, every mortgage payment adds to your ownership.
Appreciation potential: Real estate values tend to rise over time.
Tax advantages: Mortgage interest is often tax-deductible (within limits).
Stability: Fixed monthly payments offer predictability.

College Debt / Student Loans

Higher education, while costly, can offer a strong ROI. According to the Social Security Administration:

Men with a bachelor’s degree earn $900,000 more over a lifetime than those with only a high school diploma.
For women, the figure is $630,000.

College debt is an investment in your future earning power.

Vocational or Career Training Debt

Don’t want to attend college? Training in skilled trades—like plumbing, HVAC, coding, or dental hygiene—can be a smart investment.

These programs:

Are often shorter and less expensive
Lead to in-demand careers
Still offer a good income potential

Business Loans

If you’re starting or growing a business, debt can be a lever for growth. Business loans can fund:

Equipment
Inventory
Staffing
Marketing

Of course, not all businesses succeed. But if you’ve done your research, crafted a solid business plan, and are willing to do the work — business debt can turn into business equity.

What Is Bad Debt?

Bad debt is money borrowed for items that lose value, don’t generate income, or are not essential.

It’s often used to:

Fund emotional spending
Maintain appearances
Delay financial reality

Here’s the truth:
Bad debt makes it harder to hit your goals. Yes, it might feel good in the moment, but most of these purchases lose their value fast.

Types of Bad Debt (With Examples)

Credit Card Debt

Credit cards have high interest rates—often 18% or more. If you don’t pay off the balance each month, debt can spiral.

The average American owes over $5,000 in credit card debt.
Compound interest means debt can double in just a few years.

Solution: Use our Debt Snowball Spreadsheet for Free

Luxury Goods

Designer clothes, the latest phone, or fancy shoes depreciate the moment you buy them. These aren’t investments — they’re lifestyle inflations.

Borrowing to buy luxury? That’s bad debt, plain and simple.

Payday and Title Loans

These ultra-short-term loans come with sky-high interest (300%+ APR in some cases). According to the CFPB, over 80% of payday loan users can’t pay them back on time, leading to: