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Is There Really Good Debt, or Bad Debt?


We have often been told by many so-called financial experts there is good debt and bad debt. Their wisdom of classifying debts as good or bad has always been an interesting concept. They tell us a mortgage is a good debt. Student loans are a good debt. A revolving credit card is bad debt. A consolidation loan is bad debt. A car loan is a bad debt, and so on. There are a thousand scenarios where a case can be made for both sides of this argument. Laying out a thousand examples wouldn’t be practical, but for sake of argument we will list a few, for and against each side. 


A home mortgage for example: How is this a good debt when you qualify for a mortgage based on two incomes with a Debt-To-Income ratio of 43%? Yes, a VA loan will go through with a DTIR at 43%. What happens when one of the incomes is lost and the mortgage premium can no longer be paid? Oops, I guess that wasn’t such a good financial plan, even though the Mortgage Broker said not to worry, as this is a “good debt” and besides, you qualified based on their financial wisdom.


The holy grail of (So-Called) bad debts, the dreaded Revolving Credit cards.

What if your only chance to keep a high paying job was to have a reliable car? You can’t qualify for a loan because of your bad credit, but without the job you’re bankrupt. You use your credit card to buy a car, then pay-off the debts and dig yourself out of the financial hole you were in. You can see there are cases to be made that counter the Rule of Thumb the so-called financial experts like to use.


Too many purchase a house that shouldn’t.  One of the biggest lies, a mortgage is a good debt. We have no problem addressing this as a financial fib. Yet tens of thousands do it successfully each year without a problem, and thousands go into foreclosure each year, get our point.


The granddaddy of lies perpetrated daily is by the Auto Industry. Your “trusted” car salesman will tell you a car payment can be around 35% of your income, ouch! Never take financial advice from someone with a vested interest in you signing on the bottom line.


Student loan debt in the United States will soon eclipse 1.4 Trillion. This has been sold as a good debt to thousands of American families, this was another lie. Be aware there is no such thing as “Good” debt, or “Bad” debt, debt is debt, it’s not good or bad. Debt has no feelings, it’s not out to get you, and it’s not your friend. Whenever the next so-called financial expert makes claims that debt is good or bad, you need to realize they have been programed to believe this through decades of programming by their industry.


Bottom line: Debt is either manageable, or unmanageable. Stop believing debt is good or bad, it’s not, it’s manageable, or unmanageable, not good or bad.   


Phillip Day, President

Academy of Financial Literacy, Inc


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