Debt Elimination Series
Debt · Good vs Bad
"Good Debt" vs "Bad Debt" —
The Distinction That Matters
Not all debt is equal. Some debt builds wealth (when it generates more than it costs). Some destroys it (when it funds consumption that depreciates). The interest rate alone doesn't tell you which kind it is.
Good debt — when interest works for you
Mortgage on a primary residence
Low interest, often tax-deductible. Home typically appreciates faster than the interest cost. Forced savings via principal payments.
Rental property mortgage
Tenant pays the mortgage. Asset appreciates. Depreciation provides tax deductions. Generally the strongest 'good debt' case.
Education loans (with positive ROI)
Debt that increases your future earning power. ONLY if the degree leads to a job that pays back the cost. Many degrees don't.
Business loans (productive)
Debt that generates returns greater than its cost. Equipment loans, inventory loans, expansion capital that pays for itself.
Properly-structured whole life loans
Borrowing against your own cash value. The underlying money keeps earning while you use the loan. Net cost can be near-zero or even negative.
Bad debt — when interest works against you
Credit card balances
Highest interest rates in personal finance (often 20-30%). Funds consumption that's already gone. Net wealth destruction.
Auto loans on depreciating assets
Car loses 20-30% of value in year 1. You're paying interest on something declining in value. Buy used + finance shorter terms when possible.
Vacation/lifestyle financing
BNPL services and personal loans for trips, weddings, electronics. The experience is over before the loan is paid off.
Education loans (with poor ROI)
Degrees that don't increase earning power enough to pay back the debt. Liberal arts at a private school for non-tenure-track careers, for example.
Margin loans for speculation
Borrowing to invest in volatile assets. The leverage amplifies both gains AND losses. Quick path to wiped-out accounts.
The litmus test
Will this debt fund something that produces a return GREATER than the interest cost? If yes — it's probably good debt. If no — it's bad. Most consumer debt fails this test. Most business and real estate debt passes it.
Audit your debt portfolio
We'll review every debt you carry, sort the good from the bad, and build an elimination plan that targets the wealth-destroying debt first.
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