We need to talk, because the good debt vs. bad debt information you see out there a lot is often completely inadequate. So, get ready for a point of view you may not have heard before.
First though, since you’re probably wondering what the difference is between good debt and bad debt, let’s go over the standard definitions of the two. Those definitions will be important for what comes next.
What do people consider good debt?
Good debt is usually defined as money you borrow in order to invest in your future or to buy an appreciating asset.
(An appreciating asset is something you buy that you believe will be worth more over time.)
So the idea is that borrowing now can help you make your life better in the future or grow your net worth.
From that point of view, student loan debts are “great” because you might be able to get a better job with a degree.
Likewise, a mortgage could be thought of as good debt because real estate may be worth more as time goes on. (And you need somewhere to live anyway.)
Also, “good debts” usually have lower interest rates compared to other kinds of things you might borrow for. (Which is not the same thing as saying the interest rates are usually low. They may or may not be.) So you might also consider it to be debt that costs you less.