Good Debt vs. Bad Debt

Not all debt is created equal. Some types can help you reach long-term goals, while others can hold you back. Knowing the difference can make a big impact on your financial health.

Good Debt
Good debt is borrowing that helps you build wealth or increase your future income. It usually comes with lower interest rates and sometimes tax benefits.

Examples of good debt:

• Student loans: Education can boost your earning potential.
• Mortgages: A home may grow in value over time.
• Business loans: Funding a business can generate income and growth.

Bad Debt
Bad debt typically costs more than it’s worth. It often comes with high interest rates, quick-to-depreciate purchases, and little long-term benefit.

Examples of bad debt:

• Credit card debt: High rates and fees make balances hard to manage.
• Auto loans: Cars lose value quickly, sometimes faster than the loan is paid.
• Payday loans: Extremely high costs can trap borrowers in a cycle of debt.

The Bottom Line
Use debt as a tool, not a trap. When borrowing, ask: will this help me build value in the future, or will it hold me back? Even good debt, managed poorly, can have a negative impact, so borrow judiciously. Borrow only what you can afford to pay back, and read the fine print of any loan agreement. 

At Sandia Area, we’re here to help you borrow wisely with lending options that support your goals. If you’d like guidance, contact us to talk through the best path forward.