Education
Debt. The word alone sends chills down most people’s spines. It conjures up images of overdue bills, aggressive collectors, and sleepless nights spent worrying about interest rates. But here’s the thing—debt isn’t inherently evil. In fact, when used strategically, debt can be your secret weapon for building wealth. Think of it as the difference between wielding a lightsaber (good debt) versus holding a ticking time bomb (bad debt).
So, how do you tell good debt from bad debt? More importantly, how do you use debt as a tool to level up your financial game without falling into the abyss of poor credit and overwhelming payments? Let’s dive in.
What Is Good Debt?

Good debt is like an investment in your future. It’s the kind of debt that helps you generate income or increase your net worth. Think of it as borrowing money to make more money.
Here are a few classic examples:
Student Loans: While nobody loves student debt, pursuing a degree or certification that significantly boosts your earning potential is generally a smart move. Studies show that, on average, college graduates earn $1.2 million more over their lifetime than those without a degree.
Mortgage: Real estate is one of the oldest wealth-building strategies in the book. Taking out a mortgage to buy property (whether to live in or rent out) can lead to long-term financial gains as your property appreciates in value.
Business Loans: Need capital to start or grow a business? Taking on debt to create a profitable business can transform your financial future—just make sure you’ve got a solid plan (no, your dream of opening a coffee shop for dogs doesn’t count unless you’ve done the market research).
Pro Tip: Before taking on any debt—even if it’s considered “good debt”—ask yourself: Does this debt help me grow my income or net worth? If the answer is no, think twice.
What Is Bad Debt?

Bad debt is the kind of debt that doesn’t work for you—it works against you. It often funds depreciating assets (things that lose value over time) or doesn’t provide any financial return. In other words, it drains your wallet without giving anything back.
Here are some red flags to watch out for:
Credit Card Debt: Using credit cards to fund a lifestyle you can’t afford is a fast-track to financial disaster. With interest rates often north of 20%, you’ll pay far more in the long run than the items are worth.
High-Interest Personal Loans: Borrowing money to splurge on a new gadget, vacation, or other non-essential expenses might feel great in the moment, but it often leads to regret once the payments start rolling in.
Car Loans: While a car is often necessary, borrowing money for a luxury vehicle that loses value the second you drive it off the lot is a classic example of bad debt.
Fun Fact: The average American household has over $6,000 in credit card debt. Don’t be a statistic.
How to Use Debt Strategically

Now that we’ve covered the basics, let’s talk strategy. Here’s how you can use debt to your advantage without letting it spiral out of control:
1. Prioritize Low-Interest Debt
If you’re considering borrowing money, always shop around for the lowest possible interest rate. A lower rate means you’ll pay less over time. For instance, refinancing your mortgage or consolidating credit card debt into a lower-interest loan can save you thousands.
2. Invest in Appreciating Assets
Stick to debt that builds wealth over time. A rental property, for example, can generate passive income and appreciate in value, making it a solid investment.
3. Pay Off Bad Debt ASAP
Got high-interest debt? Make a plan to pay it off as quickly as possible. The “avalanche method” (tackling the highest-interest debts first) is a smart way to minimize the amount you pay in interest.
4. Don’t Over-Leverage Yourself
Just because you can borrow doesn’t mean you should. Aim to keep your debt-to-income ratio below 36%. This means your total monthly debt payments (including your mortgage, car loan, etc.) shouldn’t exceed 36% of your gross monthly income.
Real-Life Example: Say you’re earning $5,000 a month. Keeping your debt-to-income ratio at 36% or below means you shouldn’t have more than $1,800 in monthly debt payments.
5. Always Have an Exit Plan
Before taking on debt, know exactly how and when you’ll pay it off. This isn’t Vegas—don’t bet money you can’t afford to lose.
A Relatable Example
Let’s say Mike, a 30-year-old, wants to buy his first home. He’s torn between a $500,000 house and a $750,000 house. Both require a mortgage. While he could technically afford the higher payment on the $750,000 house, he chooses the $500,000 option and uses the extra cash to invest in an S&P 500 index fund. Ten years later, his investments have grown substantially, giving him financial flexibility and peace of mind.
The moral? Strategic debt choices today can lead to more opportunities tomorrow.
Wrapping it Up
Debt isn’t the enemy—it’s a tool. The difference between good debt and bad debt lies in how you use it. When leveraged wisely, good debt can help you achieve your financial goals faster, whether it’s buying a home, building a business, or growing your wealth through investments. But bad debt? That’s the quicksand that’ll keep you stuck.
So, before you borrow, ask yourself: Will this debt help me grow or hold me back? The answer could make all the difference.
The information presented is for educational purposes only and not an offer or solicitation for any specific investments. Investments involve risk and are not guaranteed. Consult with a financial adviser before making any investment decisions. Past performance does not guarantee future results.
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