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💳 Credit & Debt · Lesson 5 of 10 · 7 min

Good Debt vs Bad Debt

⚖️ Not all debt is created equal. Some debt buys you a future — a home, a degree, a business. Other debt buys you a dinner you've already digested, at 24% interest. Learning the difference is basically the whole game.

💡 Key idea

Good debt buys appreciating/income-boosting assets at low rates; bad debt funds consumed things at high rates. Know which you're taking on.

🧠 Why it matters

GOOD DEBT generally funds something that grows in value or boosts your income — a mortgage (builds equity), student loans (raise earning power), a business loan — usually at lower interest rates. BAD DEBT funds things that lose value or get consumed — credit-card balances on dinners and gadgets, payday loans — usually at brutal rates. The test: is this debt buying an ASSET that pays me back over time, or just a moment that's already gone? Even 'good' debt is only good in sane amounts.

🌍 In the real world

💡 A mortgage at 6% that builds equity in a home you'll own is a different animal from a 24% credit-card balance on a vacation that's already a memory. One is an investment with a loan attached; the other is paying triple for fun you already had.

📌 Takeaways

  • Good debt funds assets that grow or boost income (lower rates)
  • Bad debt funds consumed things at high rates
  • Ask: is this buying an asset, or a moment already gone?

📖 Terms in this lesson

Good debt: Borrowing for something that grows in value or earns income, like education or a home.

Bad debt: Borrowing at high interest for things that lose value, like card balances for everyday spending.

✅ Test yourself

Which is typically 'good debt'?
  1. Credit-card balance on dinners
  2. A mortgage that builds home equity
  3. A payday loan
  4. Financing a vacation

Answer: B · A mortgage that builds home equity

A mortgage funds an appreciating asset (home equity) at a relatively low rate.

The core test for good vs bad debt is...
  1. The lender's name
  2. Whether it funds an asset that pays you back vs something consumed
  3. The loan amount
  4. Your age

Answer: B · Whether it funds an asset that pays you back vs something consumed

Good debt buys something that grows or earns; bad debt funds things already consumed.

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