The Difference between Good Debt vs. Bad Debt: Part One

The Difference between Good Debt vs. Bad Debt:  Part One

Traditionally, “good debt” is the sort that helps you gain wealth or income, while bad debt is money spent on goods that are consumed over time. Here’s a breakdown of what is generally considered “good” debt and “bad” debt:

GOOD DEBT

  • Mortgages help you build equity in real estate, making you wealthier over time
  • Student loans help you increase your earning power
  • Business/investment loans make starting up and running businesses possible — they’re crucial to business growth.

BAD DEBT

  • Auto loans for vehicles that lose value the moment you drive them off the lot
  • Credit cards have very high interest rates and are largely used to finance consumption
  • Payday loans have high interest rates, high fees and contribute to keeping many low-income people in a cycle of debt

But how do you know when if your “good” debt is actually bad? “When it edges into your lifestyle, you have too much debt,” according to a personal finance trainer and blogger. His definition of good debt is different from the traditional model. For him, it’s “a balance you can comfortably pay every month, at a reasonable rate.”

In the next blog post The Difference between Good Debt vs. Bad Debt: Part 2, we’ll take a deeper dive into knowing what good vs. bad debt is.

In the interim, if you’re looking for a credit counsellor in Toronto, get a quick assessment with us today or call us at 416.900.2324. We will help you develop a plan, reduce your interest costs and get out of debt over time.

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