Good Debt vs Bad Debt

Good debt versus bad debt

It is probably safe to say that most people have some form of debt, whether it be good debt or bad debt.

It is also probably safe to say that much of that is bad debt.

What do I mean by bad debt? You may be saying all debt is bad, but that is not true. If you are using debt to increase your wealth or financial position, you are said to have good debt.

There is also a difference of opinion as to what is good debt. Real estate loans, business loans, mortgage loans are often considered as good. We are taught that investing in our home is the first step to securing our future.

The people who tell us to invest in our home are usually not big investors, they are usually our parents or peers.

These people also consider a family home as an asset, whereas a property investor would consider the family home a liability. Why? Do you generate income from your home monthly or annually? If it isn’t generating a cash flow, isn’t it considered a liability?

We all understand what bad debt is, the main one is of course the dreaded credit card. Other categories under bad debt would be shop accounts, car loans, holiday loans and other personal loans not generating income. Some credit cards are used as good debt, but that is another topic for discussion!