Understand the Difference Between Good Debt and Bad Debt

The Problem

All debt feels the same — stressful. But not all debt is equally harmful.

The Hack

Good debt: low interest, builds an asset (mortgage, education, business loan). Bad debt: high interest, buys depreciating items (credit cards, car loans on luxury vehicles, payday loans). Prioritize eliminating bad debt.

Why It Works

Good debt uses leverage to build wealth — a $200K mortgage builds equity in a $250K+ asset. Bad debt borrows from your future to consume today at 20%+ interest.

Pro Tips

• Mortgage (3-7%): builds equity — good debt
• Student loans (4-7%): increases earning potential — generally good
• Credit cards (18-25%): funds consumption — bad debt
• Car loans: depends — needed transportation is reasonable, luxury isn't