Good debt vs. bad debt
Not all debt is the same. Treating a mortgage like a credit card — or vice versa — is a costly mistake.
The financial internet loves to say 'all debt is bad.' That's cleaner than the truth, which is that debt is a tool and, like any tool, its usefulness depends on what you're using it for and how expensive it is.
Bad debt
Bad debt is debt with a high interest rate used to buy things that don't generate income or appreciate. Credit cards, payday loans, buy-now-pay-later plans, high-APR personal loans, and car loans at punitive rates all fall in this bucket. The math is brutal: a 24% APR credit card balance roughly doubles every three years.
Good debt (or at least, not bad)
Debt used to buy something that makes you more money, or that carries a low enough rate that it's cheaper than the alternatives, can be fine. A mortgage at 3% that lets you buy a home in a rising market. A student loan for a degree that doubles your income. A 0% APR promotional period on a credit card used strategically and paid off before it expires.
The middle — context-dependent
- Car loans: depends on the rate and whether the car is a need. 2% auto loan on a reliable used car? Fine. 9% auto loan on a depreciating luxury car? Bad.
- Student loans: depends on what you studied and what you do now. A $200k loan for a $50k career is a disaster. A $30k loan for a $120k career is a bargain.
- Mortgages: cheap debt on an appreciating asset is mostly good — but only if the house payment fits your life.
The rule
When in doubt, assume it's bad debt. People who treat a 0% loan like free money usually pay 20% in the end. Debt is gravity — you feel it less while it's working in your favor.
Put this into practice
Worth tracks your accounts, budgets, and goals — so the concepts in this article aren't just theory.
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