Good Debt vs. Bad Debt: Know The Difference

All debt is created equal, right? Well, not exactly. While debt is debt – no matter how you look at it – some types of debt are better than others. Understanding the difference between good debt and bad debt can help you make more informed and confident decisions regarding how you borrow money and how you repay your debt. In the slides to come, we’ll outline the differences between good debt and bad debt, while also touching on multiple examples of each.

What is Good Debt?

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Patrick Pleul/picture alliance via Getty Images
Patrick Pleul/picture alliance via Getty Images

Think about good debt like this: it takes money to make money. With good debt, you’re borrowing money with the idea of improving your financial situation now and in the future. Before you take on debt with the idea that it’s good, ask yourself this question: will it help you boost your net worth or generate more income in the future?

If the answer is yes, you’re dealing with good debt and it may make sense to proceed.