Debt · Borrowing & Credit

Good debt, bad debt: the line that decides which is which

Not all debt is the same. 'Good' debt is borrowing at a low rate to buy something that builds value or income over time — like a home or, sometimes, education. 'Bad' debt is borrowing at a high rate for things that lose value or vanish — like a credit card balance on a vacation. The test isn't whether you borrowed; it's what the borrowing bought and at what cost.

What makes debt 'good'?

Two things: a low interest rate, and an asset that tends to grow or generate income. A mortgage on a home, or a loan for a degree that meaningfully raises your earnings, can pay for itself over time. The borrowed money is working for you, not just funding consumption.

What makes debt 'bad'?

A high interest rate attached to something that loses value or leaves nothing behind. Credit card balances on everyday spending are the classic example — high cost, no lasting asset. The interest compounds against you while the thing you bought is already gone.

How do I decide before borrowing?

Ask: does this buy something that will likely be worth more or earn more later, and is the rate low enough that it's worth it? If yes, it may be good debt. If it's a high rate funding something disposable, that's the trap.

See it happen, don't just read it. Kurus is a life-simulator: live this decision and watch it play out over decades. Open the simulator →

Frequently asked questions

Is a mortgage good debt?
Often yes: it's typically low-interest and buys an asset that can appreciate and that you'd otherwise pay rent for. It still has to fit your budget — good debt you can't afford is still a problem.
Are student loans good or bad debt?
It depends on the cost of the loan versus the earnings boost from the degree. A manageable loan for a degree that raises your income can be good debt; a large loan for one that doesn't, isn't.