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Good debt vs bad debt

August 3, 2023

Good debt is defined by three factors:

  • The money is used to purchase something that is a necessary part of your life.
  • Repaying the debt does not blow up your budget. You can afford the monthly payments.
  • You have a plan to repay the money in a reasonable amount of time.


Bad debt is the opposite and may be marked by any of these qualities:

  • Whatever you purchased with credit cards or borrowed money – car, clothing – depreciates in value.
  • You didn’t really need the item. Very typical of credit card purchases.
  • You can’t afford the repayment plan. This impacts a lot of consumers, but especially inexperienced ones who don’t factor in the cost of borrowing money.